China's EV Sector: Riding Domestic Demand and Tech Leadership Amid Global Trade Storms

China's electric vehicle (EV) sector has emerged as a global powerhouse, defying headwinds from escalating trade tensions. While the U.S., EU, and other markets impose tariffs and subsidies to counter China's dominance, the domestic market's explosive growth and technological advancements position the sector for long-term resilience. For investors, this is a story of strategic opportunity in a sector primed to redefine automotive leadership.

Domestic Demand: The Engine of Resilience

China's EV market is surging, driven by aggressive government subsidies, low production costs, and a consumer shift toward electrification. In Q2 2025, NEV (New Energy Vehicle) sales hit 6.94 million units—a 40% year-over-year jump—accounting for 52.7% of total car sales in June alone. Key players like BYD, NIO, and Li Auto are leading the charge:

• BYD, now the world's largest EV maker, sold 352,081 NEVs in June 2025, a 25.7% YoY increase, with a 31.7% market share.
• Li Auto, celebrating its 10th anniversary, maintains dominance in the RMB200,000+ premium segment with models like the Li MEGA Home, which became China's top-selling MPV above RMB500,000.
• NIO reported 25.6% YoY growth in Q2 deliveries, while Zeekr expanded its reach with 14.5% YTD growth.

The government's “dual carbon” policy and subsidy programs ensure this momentum. By 2025, two-thirds of new EVs in China are cheaper than gasoline cars, thanks to subsidies and intense competition. Even as global markets slap tariffs, China's vertically integrated supply chains—from battery production to mineral sourcing—keep costs low and scalability high.

Technological Leadership: Batteries and Beyond

China's edge isn't just about scale; it's about innovation. The country now accounts for over 70% of global EV battery production, led by CATL, which holds a 37% global market share. Its advancements in lithium iron phosphate (LFP) batteries—cheaper, safer, and more abundant than alternatives—are critical to cost leadership.

Meanwhile, companies like BYD and Xpeng are pushing boundaries in autonomous driving, solid-state batteries, and vehicle-to-grid (V2G) technologies. The “China Stack”—a local AI-driven autonomous driving system—threatens to rival Silicon Valley's tech, with BYD's DiPilot 5.0 achieving Level 4 autonomy in 2025.

This tech prowess is unmatched. Even as the U.S. and EU ramp up their own EV ecosystems, China's $572 billion EV and charging infrastructure market by 2029 (projected CAGR of 10.9%) ensures sustained innovation and investment.

Navigating Trade Barriers: A Global Playbook

While tariffs and trade restrictions—like the U.S.'s 100% EV tariffs and the EU's 38.1% provisional duties—hinder exports, Chinese firms are adapting:

1. Overseas Manufacturing:
2. BYD and Great Wall Motors are expanding production in Southeast Asia (Indonesia, Thailand) and Europe (Sweden, Hungary) to bypass tariffs. By 2026, their overseas capacity could hit 4.3 million vehicles/year.

3. COSCO Shipping is boosting its Ro-Ro fleet to handle 700,000 vehicles annually, ensuring cost-efficient exports.

4. Domestic Focus:

5. China's 90% electrification of small car segments (e.g., BYD's Seagull) ensures strong local sales, even as exports slow.

6. Geely Auto raised its annual sales target to 3 million units in 2025, betting on domestic demand.

7. Strategic Partnerships:

8. BYD's deal with Toyota for EV production and CATL's joint ventures in Europe highlight how Chinese firms are embedding themselves in global supply chains.

Investment Opportunities: Where to Look

The sector's resilience offers compelling entry points:

1. Battery Makers:
2. CATL (OTC: CATAF): Dominates global battery production and is expanding into next-gen tech.

3. Guoxuan High-Tech: A fast-growing player with strong government ties.

4. EV Manufacturers:

5. BYD (OTC: BYDDY): A must-own stock for its scale, innovation, and global reach.

6. Li Auto (NASDAQ: LI): Strong in premium markets and poised for growth in MPVs and SUVs.

7. Charging Infrastructure:

8. State Grid EV and Tesla China: As BEV adoption grows, charging networks will be critical.

Risks and Considerations

• Trade Policy Volatility: U.S.-China tensions could escalate further, though recent tariff truces offer temporary relief.
• Overcapacity Risks: A crowded domestic market may pressure margins, especially as subsidies fade.
• Global Competition: U.S. and EU firms are catching up with tech subsidies (e.g., the IRA in the U.S.).

Conclusion: A Long-Term Bet on Dominance

China's EV sector is not merely surviving trade wars—it's thriving. Domestic demand, technological leadership, and strategic overseas expansion form a robust moat. For investors, the sector's $572 billion growth pipeline by 2029 and unrivaled cost advantages make it a long-term buy. Prioritize firms with strong domestic footprints, global manufacturing flexibility, and tech differentiation. The road ahead is bumpy, but the destination is clear: China will dominate EVs for decades.

Investment thesis: Overweight in BYD, CATL, and Li Auto. Monitor policy shifts and tariff developments closely.