The Looming Financial Crisis Behind China’s Electric Vehicle Boom: Is BYD the Next Evergrande?

Although international media have been promoting the flood of Chinese EVs as challengers to Volkswagen and BMW, an imminent financial tsunami fermented by these Chinese EV giants has long been ignored by western media and analysts.

1. The hype and the hard numbers
2. Profitability built on subsidies, not quality
3. The subsidy–debt industrial complex
4. Homogeneous hardware, cut-price competition and labour at the edge
5. BYD’s hidden leverage: the likely spark
6. Contagion risk: from factory floor to national balance sheet
7. Key Resources Referenced

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The hype and the hard numbers

It is fashionable to portray Shenzhen-built crossovers rolling off ships in Rotterdam as proof that China now “owns” the future of mobility. TikTok reels show BYD’s Seagull undercutting the price of a three-year-old Volkswagen Polo; YouTubers gush about over-the-air updates and karaoke-ready dashboards.  Yet behind the glamour sits a balance-sheet story that is quietly perilous.

Take profitability, the acid test.  Toyota posted a record JP¥4.94 trillion (£25.1 billion) net profit in its fiscal year to March 2024 – about US $31.9 billion at the average exchange rate.  By contrast, the combined 2024 profits of China’s five largest listed carmakers came to barely a third of that:

Company (2024)	Net profit (CN¥ bn)	USD bn*
BYD	40.3	5.6
Geely	16.6	2.3
Great Wall	12.7	1.8
Li Auto	8.0	1.1
SAIC Motor	1.7	0.2
Subtotal	79.3	11.0

*Converted at ¥7.2 = US $1 for 2024 average. 

Even if one generously added the thin earnings of a dozen smaller OEMs, the top twenty Chinese automakers still fall short of Toyota’s single-firm haul.  “Chinese dominance” therefore rests on volume, not value – a nuance often missed in viral content.

Profitability built on subsidies, not quality

Since 2009 Beijing has channelled at least US $231 billion in direct and indirect support into the EV supply chain – grants, tax holidays, discounted land and, above all, soft loans from state banks and local-government financing vehicles (LGFVs).  Mass production became viable only because the public purse absorbed early losses.

Nor are the cars as “home-grown” as headlines imply.  High-value traction inverters, vehicle controllers and power semiconductors still arrive in crates from Japan, Germany or the United States.  Until Elon Musk’s 2014 pledge to make Tesla’s EV patents “open source”, no Chinese brand possessed a mature electric power-train stack.  In most factories today, German stamping presses cut body panels, and Japanese CNC lines finish motor housings.  China supplies the batteries (which are, again, produced with American or Japanese devices) and the labour; the intellectual property is overwhelmingly foreign.

Because core components are common, differentiation is achieved on price.  The quickest route to a cheaper showroom sticker is to squeeze the cost of labour.  BYD’s Brazilian expansion offers a cautionary tale: prosecutors in Bahia have accused the company and two contractors of trafficking 220 Chinese workers and housing them in “slavery-like” conditions – 31 men to a lavatory, mattresses on bare concrete, passports held by site managers.  They are claiming R$257 million (≈US $50 million) in damages.

The subsidy–debt industrial complex

Operating losses funded by subsidies are one side of the ledger; the other is leverage.  The most startling example is BYD, lauded for a “net cash” position in its glossy annual report—strip away the footnotes and a different picture emerges.

A January 2025 investigation by GMT Research found BYD leaning heavily on supplier-financing platforms that allow invoices to sit unpaid for an average of 275 days.  Re-categorising those payables as interest-bearing debt lifts BYD’s true net debt to roughly CN¥ 323 billion and puts its net-debt-to-equity ratio above 200%, more than ten times the figure BYD shows investors.  The company’s reported debt-to-asset ratio of 70% already eclipses most global peers, but the off-balance-sheet obligations make it look eerily reminiscent of Evergrande, the property group whose 2021 collapse triggered a nationwide real-estate bust.

Other Chinese EV companies are less levered but also less profitable.  NIO has never recorded an annual profit; it kept going in 2024 only after Abu Dhabi’s CYVN fund injected US $2.9 billion and the Hefei city government threw in another CN¥ 3.3 billion in low-interest loans.  Geely’s headline earnings treble to CN¥ 16.6 billion look impressive until one strips out a CN¥ 9.1 billion one-off asset gain, slashing underlying profits by half.  SAIC, once the champion of Shanghai, saw profit collapse 88% to CN¥ 1.7 billion and warned it would have been loss-making without non-recurring income.

The result is a sector whose combined liabilities approach CN¥ 900 billion (≈US $125 billion), serviced by razor-thin operating margins and the implicit promise of state support.  Rating agencies privately admit that they model “soft default” probabilities – i.e., delayed supplier payments – rather than classical bond defaults when analysing Chinese carmakers.

Homogeneous hardware, cut-price competition and labour at the edge

With component parity and subsidy cushions, price becomes the dominant weapon.  Throughout 2024, China’s EV market descended into a rolling price war: BYD’s Seagull launched at CN¥ 69,800 (£7,600), forcing smaller rivals to discount below cost.  Average selling prices for battery electric vehicles fell 14% in twelve months, while gross margins at mid-tier OEMs halved.  The automotive capacity utilisation rate thereby sank to 65% in Q1 2024, from nearly 85% in 2017.  Idle plants still incur depreciation and payroll, swelling balance-sheet strain.

When margins evaporate, wages follow.  Surveys by the Shenzhen Institute of Labour Studies show line operators in tier-two EV factories working 55–60 hours per week for CN¥ 4,500 (£490) a month – about half the median wage in Guangdong’s electronics park.  The Brazilian lawsuit hints that such practices travel with the brand.

BYD’s hidden leverage: the likely spark

Why single out BYD?  Because it straddles every fault-line: largest producer, biggest exporter, most aggressive discounter and the one with the largest quantum of supplier payables masquerading as working capital.  If capital markets decide those notes deserve a credit-spread premium, BYD’s refinancing cost could jump by three or four percentage points overnight, which is enough to wipe out its 5% net margin.

The mechanics are simple: BYD issues commercial paper to suppliers instead of cash.  Suppliers then sell the paper to banks at a small discount.  Those banks treat it as trade finance, not corporate exposure, thus skirting loan quota limits.  Should BYD’s credit perception wobble, the paper would trade below par; banks would demand cash settlement; suppliers would go unpaid; and production lines would stall for want of parts.  This is precisely how Evergrande’s cash-flow spiral began.

Moreover, BYD is the hub for hundreds of small parts makers in Guangdong Province and Hunan Province.  An interruption in its payments would yank liquidity from an ecosystem employing over 900,000 people – the equivalent of Britain’s entire aerospace workforce.  In a rapidly declining economy, Beijing might step in, but at the cost of moving liabilities onto already-strained local balance-sheets.

Contagion risk: from factory floor to national balance sheet

China’s EV industry directly accounts for perhaps 2–4% of GDP and supports eight to ten million jobs once tier-one suppliers and logistics are included.  A disorderly debt event would therefore transmit through three main channels:

1. Industrial output – A 30% cut in EV production (plausible if three or four big OEMs sacrifice volume to conserve cash) would knock roughly 0.8–1.2 percentage points off 2025 GDP growth, according to S&P-Global’s automotive value-added ratios.
2. Banking stress – Manufacturing non-performing loans would jump 40–60 basis points.  Listed banks face a direct hit to profits of 4–5%, plus mark-to-market losses on on-shore corporate bonds if spreads double from the current 110 bp to 220 bp.
3. Local-government finance – Provinces such as Anhui Province and Jiangxi Province derive more than 7% of industrial VAT from vehicle plants.  A 30% revenue drop erases CN¥ 150–200 billion in tax receipts, just as land-sale income (formerly their cash cow) is shrinking after the property crash.

Put differently, the EV boom rescued Chinese heavy industry just as real estate imploded; its bust would arrive while property is still convalescing.  Beijing has tools – directed credit, forced mergers, purchase-tax holidays – but each intervention migrates risk from corporate to sovereign ledgers.  Moody’s already assigns China a negative outlook, largely over contingent liabilities at LGFVs.  An EV bailout would reinforce that caution.

Western analysts and the tabloid-tech press therefore face a choice.  They can continue to marvel at container-loads of cheap crossovers docking at Zeebrugge, or they can ask why those cars fetch prices that barely cover the metal, why the companies that build them survive only on deferred payables, and why a worker in Bahia must share one lavatory with thirty colleagues.  When the subsidy cheques stop and the payables come due, the “Chinese EV miracle” may resemble not a Silicon Valley disruptor, but Evergrande on wheels.

Disclaimer: All exchange rates and unit conversions use average 2024 market rates.  Financial data derive from official filings and reputable wire services as cited above.

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Key Resources Referenced

Corporate filings & financial statements

• BYD Co. Ltd. ― Annual Report 2024 (HKEX filing, March 2025).
• Toyota Motor Corporation ― FY 2024 Consolidated Results (May 2024).
• NIO Inc. ― Form 20-F (April 2025).
• XPeng Inc. ― 2024 Annual Results Announcement (March 2025).
• Li Auto Inc. ― Form 20-F (April 2025).
• Leapmotor Technologies Ltd. ― 2024 Interim & Full-Year Results (HKEX filings, August 2024 / March 2025).

Analyst and consultancy reports

• GMT Research ― BYD: Off-Balance-Sheet Leverage and Supplier Financing (January 2025).
• AlixPartners ― Global Automotive Outlook (January 2025).
• S&P Global Mobility ― China NEV Industry Value-Added and Capacity Trends (February 2025).

News and wire services

• Bloomberg News ― multiple EV-sector dispatches (January 2024 – May 2025), incl. BYD supplier-note investigation and price-war coverage.
• Reuters ― “BYD raises US $5.6 bn via Hong Kong share sale” (5 March 2024) and follow-up market reports.
• Financial Times ― “China’s EV price war puts profits under pressure” (9 April 2025).
• Financial Times ― Interview with Great Wall Motor chairman Wei Jianjun (29 May 2025).
• The Economist ― “Why China’s electric-car makers may face a reckoning” (20 April 2025).
• Agência Brasil / Folha de S. Paulo ― coverage of BYD labour-abuse lawsuit in Bahia (February 2025).

Government & industry data

• China Passenger Car Association (CPCA) ― Monthly NEV sales releases, 2024–2025.
• National Bureau of Statistics of China ― Industrial output & capacity-utilisation datasets (Q1 2024, Q1 2025).
• People’s Bank of China ― Financial Stability Report 2024; January 2025 credit statistics.
• Ministry of Industry & Information Technology (MIIT) ― Policy circular on auto over-capacity (July 2024).
• Moody’s Investors Service ― Outlook update: Government of China – Contingent Liabilities (December 2024).

Other referenced material

• Stellantis press release ― “Stellantis to acquire 21% stake in Leapmotor” (26 October 2023).
• Shenzhen Institute of Labour Studies ― 2024 Guangdong Factory Wage Survey (December 2024).
• Brazilian Federal Public Ministry of Labour ― Case filing against BYD Brazil (TRT-5, ref. 0000432-37.2025.5.05.0000).
• Tesla, Inc. ― All Our Patent Are Belong To You blog post (12 June 2014).

(All data and quotations are drawn directly from the documents or articles listed above; financial conversions use 2024 average FX rates.)