China’s electric vehicle (EV) sector is teetering on a financial knife-edge, as a deepening price war triggers liquidity shortfalls and mounting pressure on automakers’ balance sheets. An investigation by the Financial Times has uncovered that more than a third of China’s publicly listed carmakers ended 2024 with current liabilities exceeding their current assets — a worrying sign of growing financial vulnerability in the world’s largest car market.
The FT analysis highlights how fierce discounting, aggressive sales tactics, and delayed supplier payments are straining the industry’s financial foundations. As automakers fight for dominance in a saturated and ultra-competitive market, liquidity is drying up at an alarming rate.
Among those in the most precarious position is the industry leader BYD, which now holds the largest working capital deficit, followed by rivals Geely, Nio, Seres, and state-backed manufacturers BAIC and JAC. The combined net current assets of 16 major listed carmakers fell to RMB 104.3 billion ($14.5 billion) by the end of 2024 — a sharp 62% decline from the peak of RMB 290.5 billion in mid-2021.
“Given the current downward trend, China’s auto industry is expected to enter an industry-wide elimination phase … in 2026 at the latest,” warned Yin Xinchi, an analyst at Citic Securities. “Some companies will die of liquidity crises.”
In response to the worsening situation, Chinese authorities have taken the unusual step of publicly intervening. In a closed-door meeting last week with 16 leading carmakers, government officials issued verbal warnings over the destructive effects of extreme price cutting and late supplier payments. Practices like selling brand-new cars as “zero-mileage” second-hand vehicles were also criticized.
Following the meeting, companies including BYD, Xiaomi, Geely, and state-backed GAC and FAW pledged to adopt 60-day bill settlements in a bid to stabilize the supply chain — a significant shift for an industry accustomed to much longer payment cycles.
But this move could accelerate the cash drain. According to Citi analysts, only a handful of EV firms — notably BYD, Li Auto, Xpeng, Leapmotor, and Changan — currently possess the net cash reserves needed to weather a faster payment schedule. Many others remain dangerously exposed.
A key issue is BYD’s heavy reliance on working capital instead of conventional debt to finance its explosive growth. “None of BYD’s recent growth has been financed with conventional debt. Instead, it has relied on funding from working capital,” said Nigel Stevenson of Hong Kong-based GMT Research. He warned that the company’s debt levels are understated due to its deferral of payments to suppliers.
By the end of 2024, BYD’s working capital deficit had widened to RMB 125.4 billion — a 36% increase from two years ago. In contrast, its smaller competitors — including Geely, Nio, Seres, BAIC, and JAC — shared a combined deficit of RMB 17.8 billion.
This mounting financial tension has begun to boil over publicly. Wei Jianjun, chair of Great Wall Motor, called for a sweeping audit of Chinese carmakers, comparing the industry’s growing financial risks to the downfall of property giant Evergrande. “An Evergrande exists in [China’s] auto sector at the moment — it just hasn’t blown up,” he said.
BYD’s response was swift. Spokesperson Li Yunfei called the comments “astonishing,” arguing that BYD’s interest-bearing debt stood at just RMB 28.6 billion in 2024 — far lower than Geely’s RMB 86 billion or Volkswagen’s RMB 1 trillion. He defended the company’s extended payment cycles as a natural consequence of scale: “The larger a company grows and the higher its revenue, the greater its procurement and collaboration volume.”
Nonetheless, the cracks are growing. According to official data from the National Bureau of Statistics, operating profit margins across China’s carmakers fell to an average of 3.9% in Q1 2025, down from 4.6% a year earlier. Industry profits dropped 6.2% year-on-year, totaling RMB 95 billion in the first quarter.
Trade associations and regulators are sounding the alarm. Last month, the China Association of Automobile Manufacturers warned that escalating price wars risk pushing the industry into a “vicious cycle.” It urged leading firms not to monopolize the market or undercut competitors into collapse. The Ministry of Industry and Information Technology echoed those concerns, vowing to combat “unfair competition” and the so-called “rat race” that’s gripping the sector.
“It’s hard to do anything in the domestic market,” said one executive at a state-owned automaker. “Everything is fiercely competitive, leaving a brutal and bloody battlefield.”
Although analysts have long predicted consolidation in China’s overcrowded EV sector, the process has been slower than expected due to persistent state support. For example, struggling EV maker Nio received a nearly $1 billion bailout from state-backed investors in 2020.
Still, as liquidity tightens and price wars escalate, the long-foretold reckoning may finally be arriving. As the Financial Times investigation suggests, the battle for market share in China’s EV boom could soon become a battle for survival.
