Part 1: What is “卷” and How It Shapes the Current State of China’s Auto Industry

The term "卷" (juan) has become a buzzword in contemporary Chinese discourse, encapsulating a sense of relentless and often exhausting competition. Initially derived from the sociological concept of “involution”, it described societies trapped in cycles of overwork and diminishing returns. Today, in the context of China’s auto industry, "卷" represents a hyper-competitive environment where companies battle on multiple fronts: pricing, innovation, production capacity, and market share.

The State of Competition in China’s Auto Market: A Snapshot

China boasts the world’s largest auto market, but it is also one of the most fragmented and fiercely competitive. The numbers tell a stark story:

• Over 100 brands operate in the market, competing for a share of approximately 23 million annual vehicle sales. By contrast, the U.S. market, with sales of 15 million units annually, is dominated by just 10 brands controlling 85% of the market share.
• Domestic brands hold 53% of the market, far below the local brand dominance seen in other regions such as the U.S. (65%), Europe (70%), and Japan (85%).
• The top five brands in China command just 42% of market share, whereas in the U.S. and Europe, this figure exceeds 60%.

This fragmented environment has created a breeding ground for "卷" dynamics, where brands compete not only with each other but also with rising global players and shifting consumer expectations.

Winners and Losers: How Capacity Utilization Reflects Competitive Health

A key metric to assess the health of auto companies is capacity utilization—a measure of how effectively production facilities are being used. In the Chinese auto market, this metric highlights a tale of stark contrasts:

• Luxury and EV Leaders: Brands like Mercedes-Benz, BMW, Audi (collectively BBA), and Tesla have seen utilization rates soar past 90%, reflecting their strong demand and efficient operations.For example, Tesla’s production in China reached nearly 1 million units in 2023, maintaining utilization rates above 90% for three consecutive years.
• Struggling Joint Ventures: Many joint venture brands are in sharp decline, with utilization rates falling below 50%. Notable examples include:SAIC-GM reduced its annual production target from 950,000 units to 700,000 in 2024, yet only achieved sales of fewer than 200,000 units in the first half of the year.FAW-Volkswagen, one of the largest joint ventures, has a utilization rate of 59.2%, highlighting the challenges faced by even established players.

BYD’s Market Disruption: A Case Study

The rise of domestic EV leader BYD provides a vivid example of how the "卷" phenomenon manifests in the market. Known for its aggressive pricing strategies, BYD has introduced models like the Qin PLUS at 79,800 RMB(approximately $11,000), undercutting competitors and triggering a wave of price wars.

• In May 2024, BYD launched two B-segment models priced below 100,000 RMB, claiming to bring premium features like hybrid efficiency to the mass market.
• BYD’s production capacity reached 4.52 million units in 2024, with a utilization rate of 80.4%, significantly outpacing competitors like Geely (45%) and Chery (38%).

BYD’s early adoption of EVs and its bold move to halt traditional fuel vehicle production in 2022 has set it apart, allowing it to gain a first-mover advantage in the EV space. However, this success has also intensified the competitive pressure on other players, forcing them to adapt or risk obsolescence.

A Market in Transition: The Shift from Fuel to Electric

The broader market dynamics also reflect a paradigm shift. While the internal combustion engine (ICE) era peaked in 2017 with 24.3 million vehicles sold, the rise of EVs has upended traditional structures:

1. Luxury ICE Brands Thrive: Despite market disruption, brands like BBA continue to perform well, with utilization rates at record highs.
2. Joint Ventures Decline: Companies like SAIC-GM and Dongfeng Honda have seen utilization rates plummet, leading to plant closures and layoffs.
3. New Energy Vehicles Lead the Way: Emerging players and traditional domestic brands have adapted to EVs, with an average utilization rate climbing to 75%.

The price wars initiated by EV leaders like BYD have further reshaped the market. What began as a competitive edge has spiraled into a downward cycle where even traditional brands are forced to engage in aggressive pricing, often at the expense of margins and product quality.

Challenges in the Supply Chain: When "卷" Spreads

The hyper-competition is not limited to automakers. It has also seeped into the supply chain:

• Supplier Price Pressures: Automakers have slashed supplier costs by larger margins than ever before, creating financial strain on parts manufacturers.
• Shortened Development Cycles: The traditional 36-month design and production cycle for new models has been compressed to 24 months or less, impacting product quality and increasing operational risks.

An executive from a Tier-1 supplier commented: “The relentless cost-cutting has made it impossible to achieve the quality we once did. The standards we upheld a decade ago are now seen as a luxury.”

Conclusion: Is China’s Auto Industry “卷” Enough?

Paradoxically, despite the apparent hyper-competition, some argue that the Chinese auto industry is not yet "卷" enough in critical areas like innovation and global competitiveness. While brands scramble to survive in the domestic market, their global ambitions remain underdeveloped.

The next stage of competition will likely determine whether the industry can transition from survival mode to sustainable growth. The stakes are high, but so are the opportunities.