The Chinese government urged its EV firms to halt their “irrational competition” amid a groundbreaking price war. Premier Li Qiang headed a State Council meeting to address the government’s action plan towards the fierce competition amongst local EV firms.
GOV’T RESPONDS TO PRICE WAR
Led by Premier Li Qiang, China’s cabinet vowed to regulate its New Energy Vehicle (NEV) Industry. Rather than price-based competition, the state council meeting concluded that companies will be guided towards innovation and quality.
“If EV prices can stabilize, then prices in upstream industries like steel could also stabilize and ultimately that could help ease some of the downward pressure on overall prices.” said expert Tianlei Huang, the China program coordinator for the Peter Institute for International Economics. “The leadership is clearly growing more concerned about deflation.”
According to Bloomberg, China is on target to meet its goal of 5 per cent growth for 2025; but if deflation continues, its economy may decline. Thus, the state council meeting emphasised “strengthening the domestic big cycle” as one of its courses of action. This will include promoting domestic consumption as well as utilising existing policies that trade “old consumer goods for new ones.”
Chinese publication Qiushi published an article on the price war, stating that “the race to the bottom” can force manufacturers to compromise product quality. The article also criticised local governments for “offering unfair incentives.”
“Ultimately, instead of encouraging competition among localities — which has fuelled overcapacity in sectors like EVs and solar — the central government would need to stress coordination and make this a bigger part in evaluating local cadres’ performance,” Huang added.
Bloomberg also added that China’s auto industry profit margin is at “a record low” in 2025, barely reaching 4.5 per cent. This is almost half of its net profit margin in 2017, which stood at 8 per cent.
State media China Central Television (CCTV) reported that the government would be closely monitoring the NEV industry, making sure firms pay suppliers on time and cease aggressive pricing strategies. However, further details of the government’s solution for the price war have not yet been released.
CUSTOMER RESPONSE
While the government attempts to rein in the auto industry, buyers are ecstatic about the price cuts. Unbeknownst to most car buyers in China, the EV price war is a serious issue for China’s economy.
News outlet CNBC interviewed a local interested in buying an XPeng EV. “The harder the manufacturers compete, the better it is for the buyers,” said the buyer. “Compete however you want!”
These drastic price cuts only encourage customers to adopt a “wait-and-see” attitude. Instead of buying a vehicle after careful consideration, they are now more likely to wait in case the price drops further.
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