Electric cars: Beijing tries to end price war

Chinese authorities signaled this week that they intend to put an end to disorderly competition in the electric vehicle sector, at a time when price wars between manufacturers threaten the sustainability of the industry.

The warning comes at a time of strong sales growth, but also growing concerns about oversupply and the viability of many of the new manufacturers emerging in the country. China is the world's largest car market, the result of a Beijing-led industrial strategy that has driven the transition to electric vehicles.

Market leader BYD announced that it sold 2.1 million vehicles in the first six months of the year, 31% more than in the same period in 2024. Almost half of these sales correspond to 100% electric vehicles, and the rest to hybrids, according to data released by the company.

The automaker stopped producing internal combustion engine cars in 2022 but has come under fire for launching successive rounds of price cuts, most recently in May, that have prompted several rivals to follow suit. Great Wall Motors Chairman Wei Jianjun warned at the time that the current trajectory threatens the entire industry.

The Chinese government has meanwhile pledged to combat what it calls “devolution” — a form of exhaustive and unproductive competition that has become a feature of several sectors in China, including education and technology.

Several entities have warned of the risks of the price war, now in its fourth consecutive year. The China Association of Automobile Manufacturers called for healthy competition, while the Ministry of Industry and Information Technology said the current situation posed an obstacle to the sustainable development of the sector.

Overseas, Chinese automakers are trying to offset eroding margins by exporting. BYD more than doubled sales outside China in the first half of the year to 464,000 units. But it faces growing barriers: The United States and the European Union have imposed tariffs on Chinese-made electric vehicles, citing unfair competition due to state subsidies.

The debate intensified after Wei Jianjun's remarks, comparing the situation in the auto industry to that of Evergrande, the real estate giant whose bankruptcy has rocked the Chinese economy. "The 'Evergrande' of the auto sector already exists, it just hasn't collapsed yet," he said.

BYD reacted with outrage. “I am confused, angry and this is ridiculous,” Li Yunfei, the company’s chief brand officer, wrote on social media, dismissing any similarity to the property collapse.

The following month, 17 manufacturers, including BYD, signed a commitment to pay suppliers within 60 days — a first that could ease financial pressure on the supply chain. Until now, it has been common practice to defer payments for months, often with short-term debt rather than cash, replicating mechanisms used by property developers such as Evergrande.

“The 60-day commitment is the government’s direct response to destructive competition,” said Cui Dongshu, secretary general of the China Passenger Car Association.

Analysts warn that the impact of these measures could be decisive in stabilizing prices and avoiding a systemic crisis similar to that of the real estate sector. “We will see to what extent these initiatives can reverse the downward trend in prices and how this will affect demand in the coming quarters,” concluded Jing Yang, director of the financial rating agency Fitch Ratings.