From cars with roof-fitted drones to free self-driving software and five-minute battery charges, the rapid pace of electric vehicle innovation by China’s BYD is powering what some analysts believe is the most intense period of competition in the car industry.
Donald Trump’s sweeping tariffs are expected to lead to higher costs for resources and electronic parts in the US and Europe, resulting in a further slowdown in EV sales.
However sales in China, the world’s biggest EV market, are forecast to rise about 20 per cent to 12.5mn cars this year. As EVs start to outsell cars with internal combustion engines, 78 per cent of those sales are being soaked up by just 10 companies, including 27 per cent solely by BYD, according to HSBC data.
That leaves about 52 car brands fighting for the remaining 22 per cent of the Chinese market, including more than 30 marques that produce fewer than 30,000 cars a year and might soon face oblivion, according to Yuqian Ding, a Beijing-based analyst with HSBC.
With a new car model released on average every two days in China, keeping pace with cutting-edge technology — such as assisted driving functions and the latest infotainment systems — has become crucial for survival as the market inevitably consolidates.
Ding said it had become “binary”, split between companies with “smart EV” capabilities and those without. She added that with the market for fuel-powered cars further deteriorating, the sector was entering a period of “the most brutal competition” in its history.
“You either fold or call,” she said, referring in poker terms to giving up or matching rivals’ investments.
Features such as automatic highway lane changing and automated parking were already becoming commonplace in China. But local carmakers are also increasingly developing more sophisticated autonomous driving software earlier than many analysts forecast, thanks to the help of AI-based large language models. Such AI systems make it faster for carmakers to train driverless cars in simulated road conditions and easier to integrate mapping data sets.
Raymond Tsang, an automotive technology expert with Bain in Shanghai, said Chinese groups were “doubling down” on the deployment of advanced driver assistance system software to target the premium market segment once dominated by legacy foreign groups.
“All the Chinese [carmakers] are trying to compete at the high end,” he said. “They over-index on these features. This is their competitive edge.”
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Elon Musk’s Tesla, which makes cars in Shanghai and has been credited with helping initially to fuel Chinese enthusiasm for EVs, is among the foreign groups bleeding market share as consumers favour newer models such as those of its biggest rival BYD.
In the first two months of this year, as Musk became embroiled in US politics as an adviser to President Donald Trump, the group’s share of battery-only EV sales in China, which excludes hybrids, was at 7 per cent, down from 12 per cent a year earlier.
BYD said this week it sold 416,000 EVs in the first quarter, up 39 per cent year-on-year, while Tesla said on Wednesday it delivered 337,000 cars worldwide in the same period, far fewer than the 390,000 forecast by analysts and 387,000 a year earlier.
Since 2020, when Tesla launched its Model 3 in China, new models and refreshes have totalled four compared with around 130 over the same period from BYD, according to data from Automobility, a Shanghai consultancy.
“Keeping pace with the local market is a real challenge,” said Bill Russo, Automobility’s founder and the former head of Chrysler in north Asia.
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Foreign automakers’ market share hit a record low of 31 per cent in the first two months of 2025, a loss of one-third of the market since 2020.
UBS analyst Paul Gong said a $20bn average annual profit enjoyed by foreign carmakers in China over the past decade was at risk. If their market share fell to 20 per cent, they could be stranded with excess production capacity of 10mn units, he calculated.
Germany’s Volkswagen and Japan’s Toyota, two of the world’s largest car groups, are fighting back by investing heavily in local production and technology partnerships with Chinese companies. In recent weeks, BMW has announced tie-ups with Alibaba and Huawei, as foreign companies turn to Chinese-made software for a chance of survival.
However, BYD’s release of its free advanced self-driving system, dubbed God’s Eye, in February, followed by its partnership with leading drone maker DJI and the announcement of its high-speed charging system have heaped even more pressure on rivals.
The drone, which can be launched while a car is in motion and return automatically, may be more of a marketing tool initially, targeted at China’s ubiquitous social media influencers to help them shoot impressive bird’s-eye footage of cars and their surroundings.
The system also marks BYD’s foray into the so-called low-altitude economy, which includes using drones for logistics, agriculture and emergency services. The fledgling industry is expected to grow to $24bn by 2030, from $5bn this year, according to Bernstein.
A more immediate threat to rival carmakers comes from BYD founder Wang Chuanfu’s decision to roll out 21 new models equipped with the God’s Eye advanced driving system without charging fees. This has raised questions over the future revenue streams carmakers, including Tesla, had planned from selling their advanced driving systems as expensive subscription services.
Deployment of the high-speed charging systems from BYD and rival local battery group CATL will be slower, but over time will probably help to eradicate consumer fears over EV driving range, analysts said.
Alongside introducing new models and features, Chinese carmakers are waging a relentless price war that is increasing financial pressure on local participants.
William Li, founder of Nasdaq-listed premium EV group Nio, in March told staff the company was cutting costs across the business as competition mounted. The company has also announced a $450mn capital raise.
Neta, an EV maker backed by CATL, was forced to temporarily shut down its factories in China owing to a cash crunch. Unpaid suppliers protested at its Shanghai headquarters last month.
There are also questions over smart vehicle safety and regulation. Xiaomi, a consumer electronics maker that has moved into EVs, said on Tuesday it was co-operating with police investigations into a deadly crash involving one of its cars.
Ming Hsun Lee, an automotive analyst with Bank of America, said the collapse last year of Jiyue — a joint EV brand by car giant Geely and search engine group Baidu — suggested even EV start-ups with powerful backers and foreign traditional original equipment manufacturers could be vulnerable.
“Even if you’ve got rich parents that hold a lot of cash, you can still go bankrupt,” Lee said.
Additional reporting by Patricia Nilsson in Frankfurt and Kana Inagaki in London
