China urges EV makers to curb prices, warns of economic risk

China is urging its electric vehicle (EV) industry to stop cutting prices and scale back production as concerns over deflation and economic growth mount.

Officials have warned about “involution” – a cycle of overinvestment and diminishing returns – in sectors like EVs, AI, and new energy.

President Xi Jinping recently criticized provincial governments for excessive investment in these areas.

Last month, major carmakers including BYD, a leading China-based EV manufacturer, met with regulators to discuss overcapacity.

Chinese EV companies have slashed prices, with BYD’s Seagull now nearly 20% below its official retail price, and Great Wall Motors lowering prices for its Ora 3 model.

In response, China has proposed a draft amendment to its pricing law, aiming to strengthen government control over pricing and curb aggressive competition.

Analysts say many Chinese EV companies remain unprofitable and are closely tied to local governments.

The influx of Chinese EVs into Europe has triggered EU tariffs of up to 45%, but Chinese firms have adapted by boosting hybrid vehicle sales, regaining a 10% share of Europe’s EV market in June.

🔗 Source: The Guardian

🧠 Food for thought

1️⃣ China’s EV overcapacity crisis has been years in the making

The current price war isn’t a sudden development but the culmination of structural problems that analysts have been warning about since 2019.

Back then, experts were already concerned about an “$18 billion electric-car bubble” with over 200 manufacturers competing for market share1. By 2022, this had grown to over 94 brands offering more than 300 EV models, creating massive market fragmentation despite China controlling 70% of global EV production2.

The root cause lies in China’s $230 billion in subsidies provided over the past decade, which artificially inflated both supply and demand3. This created a disconnect between genuine consumer interest and market activity, as 44% of Chinese EV buyers indicated they wouldn’t purchase another EV without government incentives4.

Current surveys show that 62% of automotive sector companies report overcapacity as a significant concern5, demonstrating how widespread the problem has become across the industry.