China’s electric vehicle (EV) market is currently locked in a fierce price war that is changing the domestic automotive sector and impacting global markets. Leading the charge, BYD recently cut prices on several entry-level battery-electric and hybrid models, with discounts reaching nearly 30%. For example, the compact Seagull model’s price dropped to 55,800 yuan. This move has prompted other Chinese manufacturers to follow suit.
“BYD’s action this time has made the industry rather nervous,” said Zhong Shi, an analyst at the China Automobile Dealers Association. “The industry is in [a state of] relatively large shock.”
This price war unfolds amid China’s slowing economic growth and weak consumer demand. Beijing has responded by subsidising new energy vehicles (NEVs) to stimulate consumption. Morgan Stanley’s Chief China Economist Robin Xing noted, “The latest car price competition underscores how supply-demand imbalance continues to fuel deflation,” and warned that “reflation is likely to remain elusive.”
While Tesla sparked earlier price competition, the current phase sees traditional and state-owned automakers under pressure, as NEVs now represent about half of new passenger car sales in China. Great Wall Motors Chairman Wei Jianjun warned of a potential “Evergrande” crisis in the auto industry, likening the EV expansion to the troubled real estate sector.
Financial scrutiny has intensified, with BYD denying claims of pressuring a dealer over cash flow. Earlier government investigations revealed subsidy fraud exceeding 1 billion yuan by several companies, highlighting challenges in the sector’s swift growth.
According to Nomura, average car prices in China have fallen roughly 19% over two years, with hybrids and battery-electric vehicles seeing even steeper cuts. In contrast, U.S. new car prices have risen slightly, with electric vehicles averaging much higher prices.
BYD has avoided cutting prices on premium models like the Han saloon, which was reduced by about 10% earlier this year. The company reported a 49% profit increase last year but also a rise in liabilities and a slight dip in cash reserves.
Fitch’s Ying Wang noted that NEV sales growth mainly displaces internal combustion engine vehicles rather than expanding the overall market. To attract buyers without further price cuts, manufacturers are offering advanced features such as driver-assistance systems free of charge. For instance, Geely-backed Zeekr offers such systems at no extra cost, unlike Tesla.
Chinese regulators have expressed concern over “involution,” or unproductive competition, urging firms to pursue sustainable growth. Internationally, the EU and U.S. have imposed tariffs on Chinese EV imports, citing subsidy concerns, with the U.S. applying a 100% tariff. Despite this, BYD outsold Tesla in Europe for the first time in April 2025, while Tesla’s sales there fell by 49%.
While consumers benefit from lower prices and improved technology, the sustainability of this aggressive market approach remains uncertain as China’s EV dominance grows in the midst of regulatory and international trade challenges.