September 15, 2025: China is on course to open up a new route in the global race for EV market dominance — steering away from price wars to innovation, according to a new report.
China needs to avoid involution, where excessive competition leads to diminishing returns, says the report — ‘Value over volume: anti-involution to revitalise China’s EV and battery supply chain’ — released by Wood Mackenzie on August 22.
Yingchi Yang, research analyst at Wood Mackenzie, said: “The government is taking a more nuanced approach for EVs, combining market-driven adjustments with regulatory guidance to eliminate low-quality capacity while preserving the sector’s growth trajectory.”
Fellow research analyst Alasia Zhang said with automotive margins having fallen to just under 4% in the first quarter of this year and EV prices dropping nearly 6% year-on-year, these measures aim to stabilize profitability and redirect capital toward high-tech areas such as solid-state batteries, vehicle intelligence, and autonomous driving technologies.
The report also forecasts looming severe overcapacity in the battery sector with industry-wide capacity utilization at just 41%.
Unlike the heavy-handed steel sector reforms of 2015-2016, China’s EV anti-involution strategy emphasizes market forces over mandated cuts, the report said.
“This will see consolidation through new safety standards taking effect in 2026 rather than forced production reductions.”
On cathode materials, the report says responses vary by chemistry maturity.
LFP cathode markets will see policy-accelerated consolidation among a highly fragmented landscape of players, with the top five producers strengthening their market control while focusing on high-compaction-density materials.
The ternary cathode sector has already self-corrected through market forces, with the top five producers now controlling half of output.
Consolidation will come as the market shifts to high-nickel chemistries for solid-state batteries, according to the report.
Meanwhile, anode industry overcapacity and price declines have challenged the market since 2022, although new legislation will aim to regulate expansion and support technologically innovative companies.
And as the sector faces substantial lithium chemical oversupply, initiatives will focus on recycling investment, stricter environmental impact approvals and supply chain diversification.
According to the report, rather than mandating cuts, these initiatives will use market mechanisms and quality standards to eliminate wasteful competition while preserving China’s competitive edge in the global EV transition.
