by China Restricts Price Wars in the Auto Industry
The Chinese government no longer wishes to watch local automakers engage in fierce price wars among themselves. The authorities believe such actions could harm the country’s economic growth and are therefore demanding that companies take measures. If manufacturers do not act on their own, regulators are prepared to intervene.
President Xi Jinping warned of the danger of “involution” – a situation where businesses invest large sums but receive less profit.
Deep Discounts and Risks
Some Chinese automakers have lowered prices to levels that seem unbelievable to the West. For example, the compact electric BYD Seagull in China costs only $7,800, while its equivalent, the Dolphin Surf, is sold for significantly more in Europe. Even considering import duties, the difference remains enormous.
Although companies like BYD, Li Auto, and Seres remain profitable, the majority of the approximately 50 Chinese EV manufacturers are not generating income. Many of them may disappear in the coming years. In April, the average discount size on electric cars in China reached 17%, whereas in 2024 it was only 8%.
Production Idling
According to sources, the Chinese government has already held meetings with the leadership of BYD and other companies, warning them of the consequences of overproduction. Some plants are operating at only 2% capacity, indicating a serious imbalance in the industry.
One way to solve the problem is to increase car exports. Chinese brands already hold 5.1% of the European new car market, and this share could grow.
Regulators are considering changes to legislation that would limit manufacturers’ ability to set excessively low prices. This could become a new stage in the development of the Chinese auto industry, which in recent years has transformed into one of the key players in the global market. However, if local companies fail to find a balance between competition and profitability, the state will have to intervene more harshly.
