China Cautions EV Manufacturers Against Continued Price Wars Before It's Too Late | Carscoops

      The CEO of Xpeng has stated that competition in the electric vehicle (EV) market is expected to become significantly fiercer over the next five years.

      Recent reports indicate that Chinese authorities have cautioned brands against pursuing price reductions that promote unhealthy competitive practices. While BYD has been implicated in instigating a fierce price war, officials did not explicitly name the company.

      Over the last two years, the average price of new cars in China has declined by 19 percent.

      The surge in electric vehicle sales in China can be attributed not only to innovation and environmental awareness but also to a fierce price competition that has made the market resemble a discount electronics section.

      Recent trends show that the price competition among Chinese EV manufacturers has been ongoing for several years, significantly contributing to the increase in EV sales nationwide. Nonetheless, local authorities have called for an end to this practice to curb excessive competition and prevent a race to lower prices among domestic carmakers. Whether this conflict will truly cease remains uncertain.

      Regulators are advocating for a more stable environment.

      Recently, several executives from local EV brands were summoned to Beijing, where government officials encouraged them to "self-regulate," as reported by CNBC. The country's market regulatory body reiterated this sentiment, urging for a comprehensive correction of "involutionary" competition, a phrase used by Chinese Premier Li Qiang in his latest annual work report to describe the increasingly counterproductive market dynamics.

      In the last two years, prices for new EVs and hybrids in China have been slashed multiple times as local manufacturers compete for market share. The China Association of Automobile Manufacturers issued a warning, stating that "disorderly price wars exacerbate ruthless competition." They also indirectly referenced BYD, indicating that "one automaker has led the way in implementing substantial price cuts, prompting many others to follow, thus inciting a new wave of 'price war' anxiety."

      Xpeng’s perspective on the situation is clear.

      China’s Ministry of Industry and Information Technology is reportedly planning to tighten regulations on unproductive competition and aims to enforce laws that promote fair practices. However, skepticism remains regarding the effectiveness of these measures, with some anticipating an escalation in price wars.

      Xpeng’s CEO, He Xiaopeng, expressed a rather pessimistic outlook on the potential for a ceasefire. He predicts that "competition will intensify in the next five years," viewing the current situation as just a preliminary phase for what lies ahead. Analysts from Nomura echo this sentiment, noting to CNBC that, with an ongoing surplus of vehicles, the most intense phase of the pricing battles may still be forthcoming.

      In the past two years, the average retail price for new cars in China has fallen by approximately 19 percent, now around 165,000 yuan, or about $22,900. The pressing issue is whether these low prices can be sustained without causing significant issues within the market.