BEIJING – To hear some people talk about it, the problem with China’s car industry is a tsunami of state-directed spending on electric vehicles (EVs). 

“China is investing way too much in new automotive capacity,” Brad Setser, a former trade adviser to the Biden administration, wrote recently.

The success of its EV exports is explained by factories that can make 50 per cent more cars than the country can buy, according to The Wall Street Journal.

Overseas sales are patching up the problems in a policy of industrial excess, the Financial Times wrote.

Beijing is using EV exports to solve domestic overcapacity, European Commission president Ursula von der Leyen said in 2025.

It is a remarkably consistent message that manages to completely ignore the ways that the car industry is changing, in China and around the world.

In 2016, 99 per cent of China’s auto sales were conventional vehicles whose only electrical connections were a plug for your mobile phone and a cigarette lighter. In May 2026, that share fell to just 36 per cent.

Talking about “capacity” as if that shift had not happened muddies the picture to the point of meaninglessness. Chinese consumers bought nearly 17 million battery-electric and plug-in hybrid cars in 2025. Dedicated EV production lines, however, are set up to produce only about 15 million vehicles.

Add in mixed factories built to turn out both conventional and electric cars, such as those owned by Geely Automobile Holdings, and the EV sector can perhaps turn out 25 million vehicles a year. 

That looks nothing like overcapacity. With domestic EV sales alone expected to amount to between 17 million and 20 million cars in 2026, utilisation would be a thoroughly normal 70 per cent to 80 per cent without a single exported car.

Fast-growing local EV specialists such as Xiaomi, Nio, Li Auto and Xpeng appear to be selling more cars than the...