^{Photo: South China Morning Post}

A Race to the Bottom: BYD Sparks a Price War

China’s electric vehicle (EV) industry is locked in an increasingly aggressive price war — and things just escalated. BYD, China’s largest EV manufacturer, recently announced dramatic discounts of up to 30% across several of its lower-end electric and hybrid models. Its compact EV, the Seagull, now starts at just 55,800 yuan (approx. $7,750) — a move that’s reverberated across the industry.

The timing is critical. After years of rapid expansion, China’s auto market is approaching saturation. Instead of market growth, EV makers are now fiercely battling for a bigger piece of the pie. And with price drops across the board, consumers are the immediate winners — while automakers scramble to stay profitable.

Average Car Prices Plunge Nearly 20%

According to recent data from the Autohome Research Institute, the average price of a new car in China has dropped 19% in just two years, from over 204,000 yuan to around 165,000 yuan ($22,900).

Breakdown of the two-year decline by vehicle type:

• Hybrid or Range-Extender Vehicles: Down 27%
• Battery-Only EVs: Down 21%
• Traditional Gasoline Vehicles: Down 18%

In comparison, car prices in the U.S. increased during the same period. As of April 2025:

• Average new car price in the U.S.: $48,699
• Average EV price in the U.S.: $59,255
  

“Industry Shock”: Pressure on Competitors

“BYD’s aggressive pricing has left the industry shaken,” said Zhong Shi, a senior analyst with the China Automobile Dealers Association. Smaller automakers, many of whom are already operating with razor-thin margins, now face an existential crisis.

Even state-owned manufacturers are under strain. Great Wall Motors Chairman Wei Jianjun recently warned that China’s auto sector could face a crisis on the scale of Evergrande, the once-mighty real estate giant that defaulted in 2021.

“The financial model supporting many EV startups may not be sustainable in the long run,” he told Sina News, suggesting a bubble could be forming within China’s auto sector.

Not Growth, Just Cannibalization

Despite the surge in EV sales, the broader auto market in China has remained stagnant. Ying Wang, Managing Director of APAC Corporate Ratings at Fitch, emphasized that the growth of new energy vehicles (NEVs) isn’t expanding the market — it’s merely replacing internal combustion engine (ICE) vehicles.

“The auto market hasn’t seen meaningful growth since 2018,” Wang said. “Retail sales may increase by just low single digits this year.”

The Supply Glut and Deflation Fears

The steep price cuts are not just a competitive tactic — they’re also a symptom of deeper issues. Morgan Stanley’s Chief China Economist Robin Xing said in a recent note that the oversupply of vehicles is fueling deflation, a troubling sign in a country already grappling with weak consumer demand and sluggish GDP growth.

“There’s a clear disconnect between production and consumption,” Xing noted. “Reflation remains elusive as the old supply-driven model persists.”

Regulatory Scrutiny, Market Saturation, and Margin Squeeze

The Chinese government is increasingly concerned about “involution” — a term that refers to non-productive competition. It was even cited in Premier Li Qiang’s 2025 work report, signaling growing central scrutiny.

This comes amid mounting pressure on companies like BYD to defend their pricing practices. Earlier this month, Chinese media reported that BYD was squeezing a dealership in Shandong province for cash flow. BYD denied the allegations, calling them unfounded.

In the past, Beijing’s push to lead the global EV race led to massive subsidies — but not without controversy. A 2016 investigation by the Ministry of Finance found that over 1 billion yuan ($140 million) in subsidies were fraudulently claimed by EV startups, many of which no longer exist.

Profitability vs. Market Share: The Balancing Act

BYD, which was once backed by Warren Buffett, has grown into a global giant by offering vehicles at every price point. In 2024, the company posted:

• Net Profit: 14.17 billion yuan (up 49%)
• Current Liabilities: 57.15 billion yuan (up 60%)
• Cash Reserves: 102.26 billion yuan (slightly down)

Yet, it strategically excluded its premium models from the recent price cuts — such as the Han sedan (priced around 200,000 yuan). Interestingly, the latest Han model was still 10% cheaper than its predecessor, indicating a subtle but persistent margin compression.

Global Consequences: Tariffs, Trade Wars, and BYD’s Global Push

China’s low-cost EV push is making waves far beyond its borders:

• European Union: Imposed tariffs on Chinese EVs over subsidy concerns.
• United States: Hit Chinese EVs with 100% import duties, effectively blocking them from the American market.

Still, Chinese automakers are gaining ground. In April 2025, BYD outsold Tesla in Europe for the first time, according to JATO Dynamics. Tesla’s sales in Europe fell 49% that month alone, per data from the European Automobile Manufacturers’ Association.

More Than Just Price Cuts: Free Tech Add-Ons

With price wars eroding profits, some automakers are pivoting toward feature bundling. Instead of charging extra for driver-assist systems or infotainment upgrades, companies are now including them for free.

• Geely-backed Zeekr: Released its advanced driver-assist system at no cost.
• BYD: Rolled out similar features to over 20 models.
• Tesla: Still charging separately for most premium software features.

What’s Next for China’s EV Market?

As China’s EV makers expand into Europe, Southeast Asia, and Latin America, their ultra-low prices could reshape global automotive pricing norms. But the question remains: how long can companies like BYD sustain such heavy discounting?

With tightening margins, rising scrutiny, and geopolitical headwinds, China’s EV boom is entering a new — and more volatile — phase. For now, consumers reap the benefits. But behind the discounts lie deep-rooted challenges that may determine the next chapter of the global electric revolution.