Despite China's automotive industry ranking first in global production, the entire automotive ecosystem is facing difficulties due to excessive investment and cutthroat competition. Various factors surrounding the automotive industry are expected to prolong this situation.

On the 10th, the Korea Automobile Research Institute published an industry analysis report titled ‘(Industry Analysis Vol. 156) Paradox of the Chinese Automobile Industry, Internal Volume’.

According to this, the Chinese automobile industry has established itself as the world's largest market, but behind it, it is facing a structural problem called 'internal power'.

Internal power refers to an irrational state in which qualitative improvement in the overall industry is not achieved despite the competitive efforts of participants.

China has achieved remarkable results through its electric vehicle-focused development policy, but it is now facing a paradoxical situation of excessive competition and declining profitability.

China is expected to surpass 30 million automobile production units in 2024, ranking first in the world for the 17th consecutive year.

In particular, the production of electric vehicles (BEV·PHEV) is overwhelming, accounting for two-thirds of the global market.

On the other hand, behind the external growth lies excessive investment and cutthroat competition.

The internal power phenomenon in China's automobile industry has deepened in three stages.

The first is the subsidy-based growth period from 2009 to 2017. The Chinese government designated electric vehicles as a key industry and promoted technological development and production expansion with an average annual subsidy of $6.7 billion. However, policies during this period focused on expanding production capacity rather than stimulating demand.

The second period was the period of intended market expansion from 2018 to 2022. The government expanded the market by abolishing foreign investment restrictions and new factory approval requirements, and global competition intensified with Tesla's establishment of its own factory. Local governments offered various incentives to attract production facilities, and as of 2019, over 500 automakers were established.

The third period is the intensifying price war after 2023. When Tesla cut the prices of the Model 3 and Y by up to 9%, BYD countered with a strategy of "electric vehicles = internal combustion engine vehicle prices." Subsequently, even the slogan "electric vehicles are cheaper than gas-powered vehicles" emerged, and major companies jumped into the price-cutting race. In 2024, 227 models saw price cuts, and by September 2025, 112 models had done so.

This oversupply exceeded demand, eroding profitability across the industry. China's finished vehicle production capacity is projected to reach approximately 55.07 million units in 2024, but domestic sales will reach only 26.9 million units.

Even including exports, there are over 20 million idle units. The average operating rate is a mere 72.2%, and for all manufacturers, the figure is estimated to be around 50%.

Profitability has also deteriorated. The average selling price of major electric vehicle manufacturers has fallen 21%, from $31,000 in 2021 to $24,000 in 2024, and industry profit margins have fallen from 8% in 2017 to 4.3% in 2024. The restructuring of insolvent companies is being delayed due to the vested interests of local governments, further exacerbating the phenomenon of internal power.

To overcome this situation, the Chinese government is pursuing anti-domestic policies. With projections that only about 15 companies will be financially viable by 2030, the government is encouraging market restructuring by reducing subsidies and establishing industrial order.

The 15th Five-Year Plan excluded electric vehicles from the list of strategic industries and is regulating cutthroat competition through measures such as the Anti-Unfair Competition Act and the Stable Automobile Growth Plan.

However, as in the past, direct government intervention to restructure the industry in a short period of time seems unlikely. This is due to complex factors, including the automotive industry's symbolic nature, fragmented market structure, and local government support for survival.

Accordingly, the dissolution of internal control in the Chinese automobile industry is likely to be prolonged, and companies are expected to seek survival in a low-profit environment through various strategies such as indirect price competition, contract manufacturing, and exports to emerging markets.