Chinese carmakers have reduced vehicle discounts after China urged the industry to avoid aggressive price cuts, but the price war has not fully ended as overcapacity and weak demand persist.

Average discounts from both electric and petrol car manufacturers in mainland China dropped to 16.7% in July 2025, down from 17.4% in June 2025, according to JP Morgan.

Industry-wide discounts had reached record highs after the Shanghai Auto Show in April 2025, peaking above 17% in May, June, and early July, the highest since JP Morgan began tracking Chinese car prices in 2017.

JP Morgan’s analysis included 40 Chinese and foreign brands across 1,000 car models.

In late May 2025, the Chinese government stepped in to address fears that heavy price competition could harm the domestic electric vehicle sector.

🔗 Source: South China Morning Post

🧠 Food for thought

1️⃣ Government intervention reflects China’s strategic protection of EV dominance

Beijing’s decision to curb automotive price wars demonstrates how China protects industries where it has achieved global leadership through massive state investment.

The government provided an estimated $231 billion in EV subsidies from 2009 to 2023, helping Chinese brands capture 41% of domestic car sales by 20241.

This intervention comes as Chinese automakers like BYD now lead the domestic EV market, with foreign brands losing market share in a sector that China has prioritized for over a decade.

The timing of government action in late May, just after the Shanghai Auto Show when discounts reached record highs, shows how quickly Beijing will act to prevent pricing strategies that could undermine its strategic automotive investments.

2️⃣ Overcapacity reflects structural challenges from rapid production scaling

The root cause of China’s automotive pricing pressures stems from extraordinary production growth that has outpaced sustainable demand levels.

Chinese vehicle production surged from just 5,200 units in 1985 to over 31 million in 2024, now capturing 32% of global automotive production1.

This rapid scaling was driven partly by policy mandates like the dual credit system, which requires manufacturers to maintain minimum ratios of new energy vehicle sales regardless of market demand2.