Price Wars Intensify as China’s Car Market Faces Slowing Growth

Sales of new energy vehicles in China experienced significant deceleration in July, growing by only 12% compared to nearly 20% in June, according to official data released by the Chinese government. This slowdown highlights a broader trend of weakening demand for hybrid vehicles, contributing to a challenging environment for the automotive industry.

Overall car sales in China also reflected this trend, with a mere 6.9% increase in July, sharply down from an 18.6% annual rise in June. The data, provided by the China Passenger Car Association, indicates that the government is attempting to address overcapacity in the vehicle manufacturing sector, which has sparked intense price wars and financial losses for numerous automakers.

Sales specifically for hybrid vehicles, which include plug-in and extended-range hybrids, fell by 3.6% in July compared to the same month last year. This decline coincides with a surge in battery electric vehicle (BEV) sales, driven by advancements in battery technology and improved vehicle range. Despite the slowed growth in new energy vehicles, these still outsold conventional gasoline-powered vehicles for the fifth consecutive month.

Market Dynamics and Key Players

The increase in demand for BEVs has enabled certain manufacturers to achieve record sales in July. Notably, companies like Leapmotor, Xpeng, and Xiaomi have reported impressive figures. Conversely, BYD, which heavily relies on hybrid sales, encountered a third consecutive month of declining sales in China during July. BYD’s share of the new energy vehicle market dropped to 27.8%, down from 35.4% in July 2024.

The automotive industry in China has long grappled with issues of overcapacity and aggressive price competition. According to the Rhodium Group, overcapacity remains a pressing concern within China’s clean technology sectors, negatively impacting the profitability of both solar panel and electric vehicle manufacturers. To combat this, the government has implemented measures aimed at reducing excess capacity.

Research from Rhodium Group indicates that “fierce competition among EV and battery manufacturers in China for state-based incentives has led to a sharp decline in EV and battery prices.” While this has facilitated broader deployment of electric vehicles, it has also resulted in significant overcapacity in the battery sector, which poses challenges for new market entrants.

As the Chinese automotive landscape continues to evolve, manufacturers are likely to face ongoing pressures from both market dynamics and government regulations. The interplay between supply, demand, and competitive pricing will be crucial in determining the future trajectory of the new energy vehicle market in China.