Chinese carmakers have reduced the average discount on electric and petrol vehicles to 16.7% in July, down from 17.4% in June, according to a JPMorgan report.

This trend reflects efforts to align with government pressure to stabilize prices due to concerns that steep discounts could harm the country’s automotive industry.

JPMorgan said the data covers 40 brands and 1,000 vehicle models, showing that discounts reached record highs earlier this year amid intense competition.

Despite smaller discounts, analysts warn that overcapacity and weak demand continue to pressure the sector.

Car dealers say automakers may resume discounting to protect market share if demand does not improve.

Only a few of China’s roughly 50 EV makers, including BYD, Li Auto, and Aito, are profitable.

🔗 Source: South China Morning Post

🧠 Food for thought

1️⃣ Price wars historically emerge during automotive industry overcapacity crises

China’s current discount battle follows a familiar pattern seen in other major automotive markets during periods of structural oversupply.

During the 2008-2010 automotive crisis, major manufacturers implemented “substantial discounts and financing offers” to stimulate sales as U.S. vehicle sales plummeted from 17 million units in 2005 to just 10 million annually by 20081.

The root cause in both cases centers on overcapacity. China currently utilizes only half of its 20 million unit production capacity, while only three out of 50 EV manufacturers remain profitable.

This creates a destructive cycle where companies sacrifice margins to maintain market share, ultimately weakening the entire industry’s financial health.

The Chinese government’s intervention to limit price competition mirrors actions taken during previous automotive crises, recognizing that unchecked discount wars can threaten the viability of strategically important domestic manufacturers.

However, as the original JPMorgan analysis notes, addressing the underlying overcapacity requires more than regulatory pressure. It typically demands either significant capacity reduction or substantial demand growth to restore sustainable pricing.