BEIJING – In a vast showroom outside Chengdu, China, buyers stroll among brand-new cars priced well below their original value. Local Audis are marked down by half, and a seven-seat FAW SUV now sells for just $22,300, over 60 percent off its previous tag.
Zcar, a bulk buyer that scoops up unsold vehicles from anxious carmakers and dealerships, drives these deep discounts. The floods of cars offered so cheaply are a sign of trouble in China’s car sector, with far more new vehicles than buyers willing to pay list price.
Such scenes are part of a wider problem. Years of government support pushed the country’s car industry to world-leading heights, but now it faces the consequences of rapid expansion. Factories can produce double last year’s sales totals, with capacity for 54 million vehicles against just 27.5 million sold.
The sector faces a loop of overbuilding, tighter price competition, and growing losses. Dealers fill their forecourts with unsold cars, record fake sales just to access factory bonuses, then move “zero-mile” cars through unofficial channels.
Abandoned vehicles gather in rural lots, and the China Association of Automobile Manufacturers reports stockpiles have swelled to their highest in five years, reaching 3.45 million vehicles. The profit made on each car has dropped sharply, from over 20,000 RMB (£2,200) before 2022 to just 14,000 RMB (£1,400) now.
Policy decisions from Beijing set these problems in motion. Rules have long emphasized how many cars are made, ignoring whether buyers exist for them. Stimulus for the industry kicked off in 2009, with generous funds to speed up electric vehicle growth, hoping to create a home-grown EV giant.
When sales were weak, a detailed industry plan appeared in 2017, aiming to reach 35 million cars a year by 2025, nearly twice as many as the United States. Local governments, hungry for new sources of income after the property slowdown, joined in: Guangzhou pledged up to 500 million RMB yearly per carmaker for hitting output targets, and several other provinces courted factories with land deals, tax breaks, and subsidies as long as they promised tax revenue.
The outcome is severe overinvestment. There are now 169 carmakers, of which 93 control less than 0.1 percent of the market. New models come out twice as fast as foreign brands, but few turn a profit.
The toll on jobs and companies is growing. Even BYD, a leader in electric vehicles, saw profits fall last quarter for the first time in over three years, leading it to lower its 2025 sales target to at least 4.6 million units from 5.5 million.
Parts suppliers complain of overdue payments, even after a government order tried to force large firms to settle invoices within 60 days. Dealers, weighed down by the need to meet quotas, offer discounts just to keep afloat. One anonymous seller from Chengdu calls it “a lose-lose,” taking on unsold cars and then being forced to sell at a loss.
The market shakeout has started. Start-up Neta closed recently after its parent went bankrupt. Ji Yue Auto, the Baidu-Geely partnership, cut staff and restructured as competition worsened. WM Motor also went under, and Evergrande’s beleaguered car arm saw two units liquidated after selling only 1,389 vehicles on a target of 1 million.
HiPhi paused production last year due to cash shortages. Industry analysts believe only 15 of the current 129 electric or hybrid brands will still trade in 2030. Rhodium Group warns most brands will disappear by 2026, as profits across the sector slipped to just 3.9 percent in early 2025.
Foreign groups struggle, too: Stellantis went bust and left China with $1 billion in debts, Mitsubishi pulled out entirely, while Dongfeng Motor retreated from public listings after sales fell 14 percent.
This crisis in the car industry fits a pattern of oversupply across the Chinese economy. Housing, once a third of GDP, faces its own glut: unsold new homes climbed to 405 million square metres by August, up from 382 million a year earlier.
In smaller cities, home prices dropped by over 4 percent in a year, with even deeper cuts elsewhere as developers overbuilt before 2020 and buyers limited by high debts pulled back. China Vanke, a major developer, posted a loss of £1.3 billion for the first half of the year and now seeks state help.
Officials warn there are too many homes for even China’s vast population to fill. Authorities are trying to clear the backlog slowly with urban renewal projects and subsidized rental schemes in hundreds of cities, but experts say the excess will take years to resolve.
Wider economic growth, long driven by new building and industrial output, now lags. While official statistics put GDP growth near 5 percent, independent figures suggest closer to 2.5 percent, with output and retail activity dropping to their lowest levels this year. American tariffs have cut exports by a third. Prices continue to fall, as both the GDP deflator and producer prices remain in decline, and idle factory space grows.
China’s response has centred on more spending. Government subsidies for cars reached a record £38 billion this year, including £17 billion in tax relief and another £21 billion for trade-ins, which now fuel up to 29 percent of sales.
More funds have gone to bailing out local budgets and public works, boosting production further but doing little to encourage households to spend. The effect is that short bursts of car buying now leave demand weak later, a repeat of earlier boom-bust cycles.
Many argue that Beijing’s refusal to let companies collapse, for fear of mass unemployment, only keeps failing firms alive. Rupert Mitchell, an economist in Australia, says politics always outranks the market in China. Nonetheless, consolidation seems likely.
Policymakers now warn against price wars, showing official nerves as exports make up 20 percent of output but face European tariffs up to 45 percent and stricter rules in the United States. While Chinese electric vehicles attract international praise, the domestic market looks stuck.
This crisis is not unique; the solar industry saw similar shakeouts, and the property sector’s problems persist. The root cause is repeated: government targets encourage too much building. Yuhan Zhang from The Conference Board says carmakers and local governments egg each other on into making more, rushing towards quantity rather than sustainable profits.
Unless efforts shift from output targets to stimulating real demand—possibly by increasing household income support rather than one-off rebates—China’s car sector could stay trapped in low growth, along with the rest of the economy.
As autumn falls in Beijing, the challenge is clear. If China fails to put buyers ahead of raw production numbers, the country could see its recent gains stall. For now, those deep discounts in Chengdu show a tough truth: pushing out more products cannot guarantee lasting prosperity.
