The escalating price war in China’s electric vehicle (EV) market, driven largely by industry leader BYD Co., is triggering profound repercussions, prompting mounting concern from Beijing. As market forces shift and overcapacity intensifies, the sector faces a period of painful realignment, with authorities scrambling to stabilise a rapidly deteriorating competitive landscape.
Despite Chinese regulators’ efforts to curb further price erosion, analysts caution that softening demand and excessive production capacity—currently operating at just 49.5% according to data from the Gasgoo Automotive Research Institute—will severely compress margins even for top-tier brands and potentially eliminate weaker competitors altogether. The number of EV manufacturers has already begun to decline, yet the market remains oversaturated.
Beijing has responded with rare direct intervention, criticising what it terms “rat race competition” and summoning major automaker executives to a meeting last week. However, past attempts to temper the price spiral have faltered. BYD, which stands to benefit most from market consolidation, has seen a dramatic market value drop of $21.5 billion since its share price peak in late May, underscoring investor unease.
John Murphy, senior automotive analyst at Bank of America, described the situation in China as “disturbing,” highlighting the dangerous combination of weak demand and steep discounting. He predicted a wave of industry consolidation as companies seek to rationalise capacity and survive a volatile pricing environment.
Relentless price competition is eroding profit margins, weakening brand equity, and pushing even financially robust players into unsustainable positions. The Communist Party’s People’s Daily has warned that a race to the bottom in pricing and quality could tarnish the global perception of Chinese-made cars, just as brands like BYD, Geely, Zeekr and Xpeng are beginning to earn international recognition.
From the consumer standpoint, falling prices may appear advantageous, but they conceal longer-term risks. The unpredictability of pricing is undermining buyer confidence, with complaints surfacing on Chinese social media about the futility of buying now when cheaper deals may appear in weeks. Additionally, pressure to cut costs may lead to compromises in vehicle safety, quality, and after-sales service.
At the recent meeting in Beijing, automakers were urged to “self-regulate,” with explicit instructions not to sell below cost or engage in excessive discounting, according to individuals familiar with the discussions. Officials also addressed the controversial practice of selling zero-mileage vehicles into the second-hand market—a tactic viewed as an artificial boost to reported sales figures.
Chinese carmakers have embraced price cutting more aggressively than their foreign rivals. Murphy suggested that U.S. automakers might be better off exiting the market altogether, citing the high risks involved. “Tesla probably needs to be there to compete with those companies and understand what’s going on, but there’s a lot of risk there for them,” he said.
There is little ambiguity about who is leading the price cuts. “It’s obvious to everyone that the biggest player is doing this,” said Jochen Siebert, managing director at JSC Automotive. He accused BYD of attempting to monopolise the market by undercutting rivals, raising red flags over dumping practices, supply chain pressures, and dealership sustainability.
An April report from consultancy AlixPartners highlighted a wave of emerging competition among new energy vehicle manufacturers. In 2024, the industry witnessed its first recorded brand consolidation, with 16 NEV-focused companies exiting the market and only 13 launching.
“The Chinese automotive market, despite its vast scale, is expanding at a slower rate,” noted Ron Zheng, partner at Roland Berger. “Capturing market share must now take precedence.”
The turbulence is affecting firms across the spectrum. Jiyue Auto, backed by Geely and Baidu, began cutting production and seeking fresh capital barely a year after launching its first vehicle. AlixPartners consultant Zhang Yichao noted that smaller players may not have the luxury of staying out of a price war once leaders like BYD make aggressive moves. He also pointed out that low production utilisation, exacerbated by export challenges, is fuelling competition.
As China looks abroad to absorb its surplus capacity, export markets offer limited relief. “The U.S. market is completely closed, and Japan and Korea may soon follow suit if they see a wave of Chinese imports,” Siebert said. “Russia, the largest export destination last year, is becoming increasingly difficult. Southeast Asia, too, no longer presents viable opportunities.”
Cost pressures are raising alarm about supply chain financing practices. A late-2024 demand by BYD for supplier price reductions drew scrutiny over the company’s financial health. GMT Research reported BYD’s actual net debt at 323 billion yuan ($45 billion), vastly exceeding the 27.7 billion yuan officially recorded as of June 2024.
The financial strain is also rippling through the dealership ecosystem. Since April, two dealership groups selling BYD vehicles in separate provinces have collapsed.
This is not the first time Beijing has attempted to impose a ceasefire. In mid-2023, 16 major automakers—including Tesla, BYD, and Geely—signed a pledge brokered by the China Association of Automobile Manufacturers (CAAM) to refrain from abnormal pricing. Yet within days, CAAM retracted one of the key clauses, citing antitrust concerns, and discounting resumed unabated.
As the price war deepens, China’s electric vehicle market appears headed for a transformative reckoning, with only the most agile and well-capitalised players likely to emerge intact.
-Bloomberg
