Speed Limit

In the past few years, China's auto sector, particularly the NEV sector, which includes electric and hybrid models, saw lower profits despite higher sales, and decreased profitability overall, indicating lower efficiency. According to data from the China Automobile Dealers Association (CADA), sales revenue in the auto sector rose by 4 percent in 2024, but total profits fell 8 percent year-on-year. In addition, profitability stood at 4.3 percent, much lower than the 5 percent in 2023, and further fell to 4.1 percent in 2025.　

Industry experts point to a cutthroat price war between NEV makers over the last years for the decline in profits. CADA found that in 2024, average auto prices dropped by 8.3 percent, with NEV prices down by 9.2 percent. In 2024, price wars caused 195.6 billion yuan (US$28.3b) in losses for auto retailers, according to an estimate by Sang Zhiwei, a member of CADA's expert committee. Though the figure for profit performance for NEVs in 2025, which accounted for 54 percent of total vehicles sold in China, has not been released, China's BYD, which has surpassed Tesla in terms of electric vehicles sold, reported a 7.55 percent plunge in net profits for the first three quarters of 2025. This was despite a 12.75 percent growth in revenue during the period. BYD's third round of sweeping price cuts in mid-2025, which other automakers followed, was immediately criticized by regulators and media, all pointing to the chaotic price wars as a typical symptom of vicious competition.

Extreme price wars pass pressure onto every link in the auto industrial chain. China EV100, a non-profit research platform, said in a report published in March 2025 that cost cutting achieved by parts suppliers through scale, efficiency and tech cannot cover the price cuts automakers demanded. In 2024, suppliers had to endure excessive waits for payment from automakers. "The competition pressure spread from complete vehicle makers to upstream and downstream sectors," says the report.　

Meanwhile, misleading promotion of intelligent driving technologies has come into question after some automakers misrepresented L2 assisted driving (in which a human must retain overall control of the vehicle) as "fully autonomous driving," causing consumer confusion and safety incidents, severely harming industry credibility.　

In 2025, regulators, industry associations and automakers took strong actions to curb the vicious competition in China's auto industry, especially in the NEV sector. On June 1, 2025, the revised Regulations on Ensuring Payment to Small and Medium-sized Enterprises took effect, capping payment terms from large buyers at 60 days. Seventeen major automakers including FAW, Dongfeng, BYD and Geely soon pledged their compliance. In February 2026, the China Association of Automobile Manufacturers released a survey showing the average number of days it takes for these 17 automakers to settle supplier accounts dropped from 64 to 54 days.　

On July 18, the Ministry of Industry and Information Technology (MIIT), National Development and Reform Commission (NDRC) and State Administration for Market Regulation (SAMR) held an electric vehicle (EV) industry forum, emphasizing stronger oversight, long-term mechanisms, a unified national market, new standards for EV power consumption and battery safety, and support for tech innovation and quality improvement. On January 14, the three ministries held a forum with EV firms to regulate industry competition. The meeting emphasized that regulating industrial competition is an important task, including strengthening cost investigation and price monitoring, enhancing the supervision and inspection of the consistency of product production and quality inspection, strengthening the leading role of standards in industrial upgrading and guiding industry self-discipline.　

In December 2025, the SAMR released a draft Automotive Industry Price Compliance Guidelines, banning predatory pricing to eliminate rivals. From January 1, 2026, the sales tax exemption for NEV buyers, which started in 2014, was canceled and replaced by a 50 percent tax. The threshold for tradein subsidies for NEVs were also raised. Only an NEV priced above 166,700 yuan (US$24,159) is eligible for the full subsidy of 20,000 yuan (US$2,899). There was no price threshold before. Export VAT rebates for battery products will drop from 9 percent to 6 percent from April to December 2026, then be abolished entirely from January 1, 2027. This follows a reduction from 13 to 9 percent in December 2024.

The market is going through pains amid the campaign against the vicious competition. In January of this year, passenger car sales in China dropped by 13.8 percent year on year, with NEVs sales plummeting by 20 percent.　

But Cui believes the sector will show strong resilience and healthy growth in 2026. He estimated in a post on his WeChat account in March 2026 that sales of new-energy passenger cars would rise 10 percent, accounting for more than half the total in 2026. "As the sector enters a mild growth stage and price wars are blocked by policies, competition in the sector is shifting from price-based to value for money," he wrote. This includes a focus on quality, service and function. He observed that the share of passenger cars sold priced at 200,000 to 300,000 yuan (US$29,000-42,500) increased to 19 percent in January 2026, up from 18 percent in 2024, and that more than 30 percent of consumers have budgets of more than 300,000 yuan for new cars.　

In an interview with China Auto Think Tank published in March, Professor Zhao Fuquan of the School of Vehicle and Mobility, Tsinghua University, stressed that rules defining vicious competition are needed, as not all competitive pricing can be defined as such, while industry associations should boost cooperation along the supply chain and enterprises have to prioritize sustainable development.　

"High quality development is the most pressing issue for China's auto sector," Zhao said.