Why China's electric-car boom is stalling

China’s electric-vehicle boom is facing serious headwinds, as leading brands like BYD scale back production amid a fierce price war.

Transcript

00:00Chinese electric vehicles have been on the rise for years, threatening to oust established

00:05brands in Europe and the US. But there are signs Chinese production has grown too far,

00:11too fast, putting massive strain on the industry.

00:18One of those signs comes from BYD, the world's top seller of e-cars, which has just trimmed

00:23night shifts at four plants and put new production lines on ice after finding itself with forecourts

00:28full of unsold vehicles. Dealers now hold an average of 3.2 months of inventory, more

00:35than double the national norm. That's triggered a price war in the Chinese market.

00:39So it means it's good for consumers. They are getting cars at very reduced prices and

00:43very advanced, very competitive cars. But at the same time, the profit margins that the

00:48companies have have been eroded in the last years. So there will be for sure a consolidation

00:52process in the Chinese market going on. Only the strongest, the healthier players will survive.

00:58The rapid growth of the e-car industry is on the back of government support, from the

01:03state directly owning shares in companies to tax rebates and research grants, encouraging

01:08dozens of new start-ups and entrants into the e-car market. A similar story to what happened

01:15in the Chinese property market, which formed a dangerous bubble on the back of state subsidies.

01:20Well, there are major similarities between China's real estate and electric vehicle markets. There

01:26are staggering 200 e-vehicle producers in China, and they've created far more capacity

01:30than the domestic market could ever bear. Very few Chinese EV producers and battery makers

01:35are profitable. But BYD say it's very different from a real estate company like Evergrande, as

01:40the cars can be exported abroad, and the government is really pushing exports. This has led to dumping

01:45overseas, and it's very difficult to boost exports when tariffs are being introduced in key markets.

01:52If the car makers can't depend on exports, the discount spiral could keep tightening.

01:57Regulators are telling companies to set realistic production targets. But Beijing may have to decide

02:03whether to rescue its car champions or let the market take its course.