Amid the continuous expansion of China’s new energy vehicle industry, an intense price war is reshaping the industry landscape. Main manufacturers are significantly cutting prices and squeezing profit margins in order to vie for market share, leading to concerns over product quality and safety, as well as shifting financial pressures onto suppliers through delayed payments.
Behind this price competition lies a structural contradiction between government subsidies driving capacity expansion and weak consumer demand. As the price war transitions into a competition focused on technological upgrades and intelligent driving systems, can China’s automotive industry break free from the cycle of intense competition?
At the end of May 2025, the Chinese Ministry of Industry and Information Technology, along with the China Association of Automobile Manufacturers, issued a statement calling for an end to the “bottomless price war,” emphasizing that “there are no winners in this war.”
According to data from the China Automobile Dealers Association, the national dealers’ inventory alert index reached 56.6% in June 2025, reflecting significant sales pressure across the industry.
Leading Chinese new energy vehicle manufacturer BYD terminated its uniform subsidy policy for models like Qin L and Yuan6 starting on July 1st, with the highest subsidy amount reaching 53,000 yuan. Concurrently, BYD introduced its self-developed “Tianshen Intelligent Drive” system for these models, aiming to enhance competitiveness through feature upgrades.
Automotive analyst Yu Zhoran commented that companies are attempting to alleviate price pressure through a “technology war,” which fundamentally still equates to a form of “hidden price reduction.” Since Tesla initiated price cuts in 2022, the price competition in the new energy vehicle sector has seen several rounds, significantly compressing the industry’s overall profit margins.
Former Mayor of Chongqing, Huang Qifan, pointed out on July 6th at the 2025 Shell Finance Annual Conference that China’s automotive manufacturing industry has a profit margin of only 5%, with the total profits from producing 30 million vehicles amounting to less than those from Toyota’s sales of 9 million vehicles.
While the price war may temporarily benefit consumers with lower-priced models, industry insiders warn that some automakers are cutting costs by reducing features and substituting materials, which could compromise product quality.
Xiaomi’s first SUV model, YU7, launched in June with the Qualcomm Snapdragon 8Gen3 chipset commonly used in smartphones, replacing the automotive-grade Snapdragon 8295 to lower costs. A similar approach was seen with BYD’s Tang Cheetah brand, which switched the cabin chipset to self-developed BYD9000, meeting consumer-level standards.
Apart from cabin chipsets, the widespread use of “copper to aluminum” in high-voltage wiring materials has been observed. While aluminum costs only one-sixth of copper, concerns remain over reliability and durability.
Chairman of Great Wall Motor, Wei Jianjun, publicly questioned the viability of reducing car prices from 220,000 to 120,000 yuan, stating, “How can such a reduction ensure product quality?” He emphasized that such price reduction strategies inevitably involve compromises in raw materials and assembly quality.
An investigative report by “Auto King” in March 2025 revealed that some new energy vehicles priced below 70,000 yuan cut costs by eliminating airbags, using lower-cost controllers, and even omitting OTA upgrade functions. Quality issues that may not be immediately apparent could pose safety and reliability risks in the medium to long term.
The profit margins of main manufacturers are being squeezed due to the price war, leading companies to shift cost pressures onto upstream suppliers. According to reports from The Wall Street Journal, suppliers mentioned that companies like BYD request monthly price adjustments, conduct frequent reviews of cost structures, and even inspect production line personnel to verify pricing justification.
A report by CITIC Securities at the end of 2024 revealed that multiple automakers were requiring core component suppliers, such as batteries and motors, to reduce prices by 15% to 20%. For instance, during contract negotiations in 2025, BYD demanded a 10% price reduction from suppliers, citing that the new energy vehicle industry has entered the “elimination round.”
Payment cycles have also significantly lengthened. A survey by the China Association of Automobile Manufacturers in early 2025 showed that 42% of small and medium suppliers cited funding difficulties due to delayed payments by main manufacturers. XPeng’s payment period extended from 179 days to 221 days, although officials claimed they were legally using acceptance bills, requiring suppliers to discount them on their own and bear interest losses.
In response, BYD launched an internal electronic debt tool named “Dilian,” with suppliers typically needing to wait 6 to 10 months after receiving bills before cashing them.
Industry estimates suggest that BYD has saved billions of yuan in annual funding costs, equivalent to 15% to 20% of its net profits. If suppliers choose to discount early, they assume an annualized interest rate of around 3% to 5%, effectively transferring financing costs upstream.
Since 2020, the Chinese Communist Party has promoted the development of new energy vehicles through vehicle subsidies, land incentives, and tax reductions. A report from the National Information Center in 2024 indicated an annual production capacity of 15 million vehicles, yet actual sales fell short of 10 million vehicles, with a capacity utilization rate of only 65%.
Professor Xu Xiaonian from the China Europe International Business School pointed out at the China-Europe EMBA Forum in October 2024 that “subsidies are not market-driven but rather an administrative intervention. Excessive subsidies cause companies to lose competitive logic, ultimately leading to industry-wide ‘internal competition.'”
Professor Xu Xiaonian also stressed, “Subsidies are not market-oriented but rather an administrative intervention, resulting in resource misallocation and disorderly expansion.” Lin Jiang, Vice Dean of Lingnan College at Sun Yat-sen University, mentioned that without market self-discipline and fair competition, the automotive industry may struggle to form a sustainable industrial logic.
In June 2024, the Chinese National People’s Congress passed amendments to the Anti-Unfair Competition Law, including new regulations prohibiting “obviously unreasonable payment terms” in an effort to regulate large enterprises’ behavior towards suppliers.
Nevertheless, industry experts widely believe that the current price war and excess capacity expose a malfunctioning market mechanism and policy deviations, with legislative measures aiming at remedial adjustments rather than addressing the root issue of competition imbalance.
Lin Jiang, Vice Dean of Lingnan College at Sun Yat-sen University, highlighted in the March 2025 issue of “Southern Weekend”: “A market without genuine market behavior cannot generate a sustainable industrial logic. The way out of the automotive industry’s internal competition is not just a ceasefire in the price war but a return of the market to rationality.”