China's EV Market: Navigating Declines to Seize Global Dominance

The recent dip in China's electric vehicle (EV) sales—a 18.9% week-on-week drop for Nio and a 75.8% plunge for Tesla—has sparked concerns about the sector's sustainability. Yet beneath the volatility lies a structural shift: China's EV industry is pivoting from domestic competition to export-driven growth and supply chain supremacy. Companies like BYD and CATL are capitalizing on this transition, while innovative business models like Battery-as-a-Service (BaaS) are unlocking new markets. For investors, the short-term slump presents a buying opportunity in firms positioned to dominate the global EV landscape.

Structural Advantage: Supply Chain Dominance

China's EV sector is built on vertical integration and scale. BYD, the world's second-largest EV maker by sales, controls 17.4% of global EV battery installations (Jan-May 2025), while CATL, the global leader with 38.1% share, maintains its dominance through low-cost production and partnerships with automakers like Tesla and Stellantis. Together, they account for 55.5% of global battery demand, a figure that underscores their stranglehold on critical EV supply chains.

This duopoly's scale enables aggressive pricing. BYD's vertically integrated supply chain—spanning batteries, semiconductors, and software—allows it to undercut rivals like Tesla in overseas markets. Meanwhile, CATL's lithium iron phosphate (LFP) batteries, which now power 67% of China's EVs, offer unmatched cost efficiency and safety, even as sodium-ion and solid-state technologies loom on the horizon.

Export Surge: The New Growth Frontier

While domestic sales face headwinds, China's EV exports are booming. BYD led with 470,000 units exported in H1 2025, a 229.8% year-on-year jump, driven by models like the Seagull (priced at $26,000) and its ability to navigate EU tariffs via local factories. Geely and Chery followed with 160,900 and 250,800 units, respectively, but BYD's hybrid focus (61% BEVs, 39% PHEVs) better aligns with global demand.

Exports are now critical to sustaining growth. Xiaomi's YU7 SUV, which racked up 240,000 pre-orders in 18 hours, exemplifies how new entrants are leveraging global markets to offset domestic saturation. Meanwhile, Tesla's China-made EVs—despite June deliveries hitting 71,600—remain a niche export story, as BYD's European sales nearly matched Tesla's in May 2025.

BaaS: A Game-Changing Business Model

The shift to BaaS—where batteries are leased rather than sold—has revitalized lagging brands. Nio's Firefly sub-brand saw a 54.7% weekly sales surge after introducing BaaS, slashing upfront costs by ~$5,000. This model is gaining traction in markets like Southeast Asia and Europe, where affordability and low maintenance are priorities.

Leapmotor and Zeekr have also piloted BaaS, though BYD and CATL's control of battery production gives them unique leverage. A company like CATL, which could monetize battery swaps or leasing directly, stands to benefit from this trend.

Why Invest Now?

The sector's short-term volatility—driven by price wars, trade tensions, and seasonal demand—masks its long-term trajectory. Key catalysts include:
1. Global Market Share Gains: BYD's 159,300 H1 exports (up 229.8%) and CATL's 152.7 GWh installations (up 40.6%) signal accelerating international penetration.
2. BaaS Scalability: Firefly's success proves BaaS can unlock demand in price-sensitive regions.
3. Supply Chain Resilience: China's 70%+ dominance in battery production, paired with innovations like sodium-ion tech, will deter competitors.

Investment Outlook

• BYD (002594.SZ): The clear leader in exports and vertical integration. Its H1 sales surged 33%, with Europe and Southeast Asia as growth engines.
• CATL (300750.SZ): The undisputed battery king, with a 38.1% global share and partnerships extending to Europe's Stellantis.
• Xiaomi (1810.HK): Its YU7's pre-orders and BaaS-ready infrastructure make it a high-risk, high-reward bet in the EV arms race.

Avoid pure-play domestic players like Nio and Li Auto, which lack export scale or cost advantages.

Conclusion

China's EV market is transitioning from a domestic battleground to a global conquest. BYD and CATL's supply chain mastery, paired with export-led growth and BaaS innovation, positions them as the sector's linchpins. Short-term declines are a buying opportunity for investors willing to ride the structural tailwinds of cost leadership and global expansion. The road ahead is bumpy, but the destination—dominance in the $1.5 trillion EV market—is clear.