In an era where electric vehicles (EVs) are rapidly transforming the automotive landscape, the innovations emerging from China's BYD are at the forefront of this evolution. From cars equipped with roof-mounted drones to advanced self-driving software and astonishingly quick five-minute battery charges, BYD is setting the pace for what some industry analysts are labeling as the most competitive phase in the history of the automobile sector.

However, the backdrop against which these developments occur is complex. The sweeping tariffs imposed by former U.S. President Donald Trump are anticipated to lead to increased costs for resources and electronic components in both the United States and Europe. This situation is expected to cause a further slowdown in EV sales in these regions, while the landscape in China tells a different story.

China, recognized as the world’s largest EV market, is projected to see sales rise by approximately 20 percent, reaching an impressive 12.5 million cars this year. A significant shift is underway as EVs are on track to surpass sales of traditional internal combustion engine vehicles. As noted by HSBC, around 78 percent of these sales are concentrated among just ten companies, with BYD alone accounting for a staggering 27 percent of the market share.

This leaves approximately 52 car brands contending for the remaining 22 percent of the market, a competition that is particularly fierce for over 30 manufacturers producing fewer than 30,000 cars annually. According to Yuqian Ding, an analyst based in Beijing, many of these smaller brands may be on the brink of extinction as the market consolidates.

To remain relevant, companies in this rapidly evolving market must release new car models at an astonishing pace, averaging one every two days. Consequently, staying abreast of cutting-edge technologies—such as advanced driver assistance systems and state-of-the-art infotainment systems—is not just advantageous; it has become essential for survival. Ding emphasized that the industry has split into two distinct groups: those with “smart EV” capabilities and those without. She indicated that as the market for fuel-powered cars continues to decline, the industry is entering a phase characterized by unprecedented and brutal competition.

“You either fold or call,” Ding articulated, using a poker analogy to describe the high-stakes environment where companies must decide to compete aggressively or risk falling behind.

Among the notable advancements, Huawei-backed Aito’s M9 SUV features a significant rollout screen, and the introduction of functions such as automatic highway lane changes and automated parking has become increasingly standard in China. Furthermore, local manufacturers are leveraging sophisticated autonomous driving software earlier than many experts anticipated, thanks in large part to the integration of AI-driven large language models. These advanced systems facilitate quicker training for driverless vehicles in simulated conditions and streamline the integration of intricate mapping datasets.

Raymond Tsang, an automotive technology expert at Bain in Shanghai, pointed out that Chinese carmakers are “doubling down” on the application of advanced driver assistance systems, particularly targeting the premium market segment that was once the domain of established foreign manufacturers. “All the Chinese carmakers are attempting to compete at the high end,” he remarked. “They are focusing heavily on these advanced features as their competitive edge.”

On the other hand, Tesla, which has a significant production facility in Shanghai and is often credited with igniting the initial enthusiasm for EVs in China, is facing a decline in market share as local consumers increasingly gravitate towards newer models, particularly from BYD, its largest rival. Recent figures reveal that in the first two months of this year, Tesla’s share of battery-only EV sales in China dropped to 7 percent from 12 percent the previous year, coinciding with Elon Musk's rising involvement in U.S. political matters as an advisor to Donald Trump.

For context, BYD reported selling 416,000 EVs in the first quarter of this year, reflecting a remarkable 39 percent increase year-on-year. In contrast, Tesla reported delivering 337,000 vehicles globally during the same period—significantly below the 390,000 units analysts had anticipated and a decline from 387,000 a year prior. Since the launch of its Model 3 in China in 2020, Tesla has introduced only four new models and refreshes, while BYD has unveiled approximately 130 models in the same timeframe, according to data from Automobility, a Shanghai-based consultancy.

Bill Russo, founder of Automobility and a former executive at Chrysler in North Asia, stated, “Keeping pace with the local market is a real challenge.” The market dynamics have shifted dramatically, with foreign automakers witnessing their market share plummet to a record low of 31 percent in the first two months of 2025, representing a staggering one-third loss since 2020.

UBS analyst Paul Gong warned that the average $20 billion annual profit foreign carmakers enjoyed in China over the past decade could be in jeopardy. Should their market share decrease to 20 percent, these manufacturers could be stuck with excess production capacity estimated at 10 million units.

In an effort to reclaim lost ground, established giants like Germany's Volkswagen and Japan's Toyota are heavily investing in local manufacturing and forging technology partnerships with Chinese firms. Recently, BMW announced collaborations with Alibaba and Huawei, signaling a shift towards utilizing Chinese-made software as a strategy for survival amidst fierce domestic competition.

Adding to the competitive pressure is BYD’s introduction of its free advanced self-driving system, nicknamed God’s Eye, which was launched in February. This initiative was followed by a partnership with renowned drone manufacturer DJI and the unveiling of a high-speed charging system, creating even more challenges for rivals.

BYD has developed a model in collaboration with DJI that utilizes the vehicle's roof as a launching pad for a drone, enabling it to capture a bird's-eye view of the vehicle and its surroundings. This innovative feature not only enhances the vehicle's appeal but also serves as a potential marketing tool aimed at China’s vast community of social media influencers, who can produce stunning aerial footage.

This initiative also marks BYD's entry into the burgeoning low-altitude economy, which encompasses drone applications in logistics, agriculture, and emergency services. Experts predict that this nascent industry could expand from its current valuation of $5 billion to an impressive $24 billion by 2030, according to Bernstein.

However, the immediate threat to competing automakers stems from BYD’s rapid rollout of 21 new models, all featuring the God’s Eye advanced driving system at no additional cost. This raises significant concerns regarding future revenue streams for car manufacturers, including Tesla, who had anticipated generating substantial income from advanced driving systems offered as premium subscription services.

As BYD and rival local battery giant CATL gradually deploy high-speed charging systems, analysts suggest that these advancements will ultimately help alleviate consumer anxieties regarding EV range limitations. Despite these technological strides, the price war waged by Chinese automakers is applying relentless financial pressure on industry participants.

William Li, the founder of Nio, a premium EV manufacturer listed on Nasdaq, recently communicated to staff the necessity of implementing cost-cutting measures across the board as competition intensified. Additionally, Nio has announced plans for a substantial $450 million capital raise.

In troubling developments, Neta, an EV manufacturer backed by CATL, had to halt production in its Chinese factories due to a severe cash flow crisis, prompting protests from unpaid suppliers at its Shanghai headquarters last month. Furthermore, the industry faces scrutiny regarding smart vehicle safety and regulatory compliance. Xiaomi, a consumer electronics powerhouse that has ventured into the EV sector, announced on Tuesday that it is cooperating with police investigations related to a fatal crash involving one of its vehicles.

Ming Hsun Lee, an automotive analyst at Bank of America, noted that the collapse of Jiyue, a joint EV brand created by automotive giant Geely and search engine powerhouse Baidu, serves as a stark reminder that even startups with significant financial backing can encounter dire challenges. “Even if you’ve got rich parents that hold a lot of cash, you can still go bankrupt,” Lee cautioned. The intense competition and evolving market dynamics underscore the risks associated with the burgeoning EV industry in China.

Additional reporting by Patricia Nilsson in Frankfurt and Kana Inagaki in London.