Why Chinese government is upset with its electric car industry that’s been growing globally at superfast speed

China's electric vehicle industry, despite dominating global markets, faces government crackdown as officials struggle to contain "involution" - excessive competition that's driving manufacturers into ruinous price wars and creating dangerous overcapacity across the sector.President Xi Jinping led a July Politburo meeting declaring the government "must reinforce industry self-discipline to prevent vicious 'involution' competition," as reported by The New York Times. The warning comes as fierce competition among 50 automakers has created a destructive cycle of slashing prices repeatedly, leaving manufacturers struggling to pay suppliers while continuing to borrow from state banks to build more factories.Even

BYD

, the world's largest electric vehicle maker, reported profits falling by nearly one-third in spring 2025 due to price competition pressures. The company exemplifies an industry where success breeds its own problems - Chinese EVs now make up over half of domestic car sales for five consecutive months, yet the sector's financial health deteriorates rapidly.

Price wars leave dealers and suppliers struggling

The overcapacity crisis extends beyond manufacturers to dealers whose lots overflow with unsold inventory while being forced to promote vehicles below cost. Auto parts suppliers face months-long payment delays, forcing them into additional bank loans to survive. Four provincial dealership associations jointly complained that below-cost selling "drags down the credibility and sustainable development of the entire industry."Government intervention has shown limited success. While 17 automakers agreed in June to pay suppliers within 60 days, an August compliance report revealed only three state-owned companies had implemented proper payment systems, according to The New York Times analysis.

Innovation boom masks financial troubles behind growth

Despite financial strain, the competition drives remarkable innovation. BYD's latest models feature dashboard-controlled drones and hydraulic "dancing" capabilities, while Geely offers luxury minivans with hammock-like reclining seats separated by privacy walls.This innovation surge stems from China's massive engineering workforce - producing ten times more mechanical engineers than the United States. BYD alone employs 120,000 engineers earning under $3,000 monthly, demonstrating how human capital advantages fuel technological advancement even amid financial turbulence.The industry now exports one-fifth of production globally, triggering Western trade backlash and tariffs while established players like Tesla struggle with aging models and declining China sales.