China wants to stop the EV price war. Can it?

In Beijing, as the battle for electric vehicle (EV) market share heats up, Chinese officials are raising alarms over the escalating price war that threatens the industry's stability. Known locally as "neijuan," or involution, this excessive competition has prompted significant commentary from top leaders, including Premier Li Qiang, who addressed the issue in his work report earlier this year. At a recent meeting, regulators emphasized the need to curb such cutthroat competition, urging industry players to engage in self-regulation. Despite these warnings, many analysts anticipate that the rivalry among manufacturers will intensify. The China Association of Automobile Manufacturers highlighted a concerning trend, noting that a leading automaker's aggressive price reductions have sparked a wave of similar cuts across the sector, culminating in what they describe as a new phase of "price war" anxiety. The association specifically pointed to BYD, a key player in the market, which initiated substantial discounts on its vehicles, including reductions exceeding 30% on specific models. Such maneuvers have raised concerns about further diminishing profit margins and potential risks to consumer safety, as the association called for adherence to fair competition practices. In a response published by the People's Daily, the Communist Party’s official newspaper, the ministry reiterated that "no one wins in a price war" and underscored the government's commitment to regulating competition in the industry. Although BYD expressed support for a fair market, industry experts noted that the recent price adjustments were likely a formalization of discounts previously available through China's trade-in subsidy program. Despite holding a nearly 30% market share, BYD is not immune to competitive pressures, with analysts from Nomura highlighting the slowdown in sales growth. Observations from the market indicate an oversupply of vehicles, with unusual occurrences of secondhand cars being sold with zero mileage, suggesting potential manipulation of sales figures. As the EV market continues to evolve, insiders predict that the price war is far from over, with further competition expected in the coming years. Meanwhile, companies like Xpeng are shifting focus from price competition to technological advancement, aiming to solidify their positions in both domestic and global markets. Although many startups in the EV sector are currently facing financial losses, there are signs of optimism, especially from established players like Xiaomi, which anticipates profitability in its burgeoning electric vehicle division by the latter half of the year.