By some counts, there are over 100 electric vehicle (EV) companies in China. People who watch the industry closely believe that only a very small number will survive. Those in trouble have even stopped paying their suppliers.
The argument about the future of Chinese car companies is simple. Government policy helped almost all these companies launch into the world’s largest market for EVs. Two-thirds of all EVs sold in the world are sold in China. This seemed to make the government’s EV policy smart—until it wasn’t.
The Chinese government now sees its policies have triggered a problem. There are too few EVs sold to support 100 companies. Part of the nightmare the government began is that many of the companies have had to cut prices to be competitive at all. They may be able to sell cars, but they lose money on each sale.
Companies from Europe and Japan have also found that what was once a profitable place to sell cars is no longer. Many have retreated or cut back operations substantially.
Tesla Profits From the Mayhem
The one overseas company that has a chance to profit from the Chinese mayhem is Tesla Inc. (NASDAQ: TSLA | TSLA Price Prediction). In August, Tesla deliveries of Model 3 and Model Y vehicles made at Tesla’s Shanghai factory rose 22.6% month over month. Granted, some of these are exported, but the sales almost certainly mean that Tesla makes money in China. This means it can survive the China EV carnage and emerge as one of the few winners.
Granted, Tesla has had problems in China, as deliveries for the first seven months of the year are down from the same period in 2024. At the same time, local giant BYD has been more successful. Yet, Reuters reports that BYD sales have started to slow.
Tesla has about 5% of the market for new EVs sold in China. That puts it in fifth place based on that measurement. However, if dozens of Chinese cars disappear, a fifth-place market share is not a bad place to sit, particularly if BYD has challenges. According to Bloomberg, “But after the boom, China’s biggest automaker faces a reality check. Since May, domestic sales have shrunk and growth in international deliveries aren’t enough to outshine the homegrown shortfall.” The news service points out that the Chinese government does not support BYD as it used to.
Fifth place in any race rarely looks good. However, in the United States, fifth place has not been a bad place to be at all. Suddenly, Tesla’s China business is operating during a time when prices have finally started to become sane. In the U.S., from a profit standpoint, a car company would be better off in fifth place. From time to time, BMW, Mercedes, and Subaru have held that place. Being GM or Ford is nice from a market share standpoint, but from a profit standpoint, it is a different matter.
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