Hey EV fans, tired of Tesla’s pricing games? China’s got bigger drama: officials are begging makers like BYD and XPeng to quit the price wars before they tank the whole industry.

China is urging its electric vehicle industry to stop cutting prices and rein in production amid fears that persistent deflation is imperilling economic growth. This directive comes as officials highlight the risks of “involution” in overcapacity sectors like EVs, where companies invest heavily for shrinking returns.

Government Push Against Overcapacity

Chinese officials have repeatedly emphasized the need to combat “involution” in industries plagued by oversupply, including electric vehicles. According to The Guardian, President Xi Jinping addressed the issue directly in a speech this month, criticizing provincial governments for blindly overinvesting in new energy vehicles, among other strategic priorities at risk of overheating.

On July 23, Xi stressed breaking the cycle of “involution” gripping parts of the world’s second-largest economy. Government agencies have responded swiftly to Xi’s remarks, pledging supply-side reductions. Hutong Research, an independent advisory firm based in Beijing and Shanghai, noted in a recent report:

“These developments highlight not only the elevated political attention to excess capacity but also the breadth of the problem across China’s economy.”

This raises questions about how effectively authorities can enforce changes in a hyper-competitive market where consumers expect rock-bottom prices.

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Price Wars Among Leading EV Companies

Major Chinese EV manufacturers, including BYD—often viewed as a rival to Tesla—were summoned to meetings with regulators last month to receive warnings about overcapacity. Companies frequently slash prices to near or below cost in bids for market dominance.

BYD has repeatedly reduced the price of its low-end Seagull model, most recently offering it for 55,800 yuan (about $7,100 USD), nearly 20% below the official retail price. In March, BYD cut prices across the Seagull range by 3,000 yuan (roughly $380 USD). Competitors follow suit. Great Wall Motors released a new version of its Ora 3 car in June for about 20% less than the September retail price.

In January, He Xiaopeng, the chief executive of XPeng Motors, reportedly told employees that “the market will definitely see fiercer competition in 2025” and that some auto companies would not survive the looming price war. Many EV bosses complain about the price-cutting cycle while participating in it.

Regulatory Changes and Analyst Skepticism

Last month, China revealed a draft amendment to its pricing law—the first revision since 1998—aimed at curbing price wars. The changes would strengthen government powers to set price limits, identify “unfair pricing behaviour,” and curb “involution-style” competition, such as using market dominance for bulk sales.

However, some analysts doubt the measures’ impact. Antonia Hmaidi, a senior analyst at Merics, said: “I am not convinced that the Chinese government will do something to curb in any significant way because so far at least no one’s been really punished for investing too much in strategic priorities.”

Hmaidi noted few EV companies in China are profitable, with many tied to local governments reluctant to let them fail. She added:

“We are seeing some changes in specific types of action that the government is taking that are pointing towards this. But we’ve seen these kinds of actions before, and nothing came of it. And ultimately, you would need to provide an alternative to a lot of these local governments, for instance.”

Global Trade Implications

One potential solution to domestic oversupply involves exporting more EVs, which could heighten tensions with trading partners.

Hmaidi said: “I think in the short term, there will be more tension with most of its trading partners.” The flood of Chinese EVs into the European Union has prompted tariffs of up to 45% on battery EVs last year, though Chinese firms adapted by promoting plug-in hybrids.

In June, Chinese companies regained a 10% share of Europe’s EV market. Last week, the politburo discussed regulating “disorderly competition” in the economy, signaling ongoing focus on these issues. For EV enthusiasts and owners, this could mean stabilized pricing in China, but it also underscores broader economic pressures influencing global supply chains and competition.

Photos courtesy of BYD.