Chinese automaker BYD implemented an average price reduction of 10% across its vehicle lineup in March, deepening a price war that regulators have repeatedly urged automakers to avoid.
China’s auto industry has been battling severe overcapacity for nearly two years, with factories capable of producing 55.5 million vehicles annually—more than double the 23 million units sold in 2023. Despite warnings from officials to curb aggressive discounting, companies including BYD, Geely, and Chery continue to slash prices to stimulate demand.
In April 2023, Chinese authorities convened a meeting with executives from over a dozen automakers, urging them to halt the price war to prevent a destructive downward spiral. The market regulator emphasized the need to address what it termed “involutionary” competition—a phrase adopted from Premier Li Qiang to describe self-defeating industry practices.
However, the price cuts have only intensified. According to Bloomberg data, BYD’s average discount reached 10% in March, while Geely and Chery maintained discounts of around 15% throughout the past year.
Overcapacity Drives Desperate Discounts
The root of the crisis lies in China’s massive overcapacity. Last year, domestic sales totaled 23 million vehicles, yet production capacity stands at 55.5 million units per year. To offset weak domestic demand, Chinese automakers have significantly boosted exports, with electric vehicle (EV) shipments more than doubling last month.
Regulatory scrutiny has further tightened financial pressures on automakers. Previously, companies delayed supplier payments for months to fund aggressive discounts. Now, regulators are enforcing faster invoice settlements, increasing automakers’ financial liabilities. For BYD, this shift has pushed its debt-to-equity ratio to 25%.
“It seems to be good for the customers, but it’s not — manufacturers are losing money. It hurts the full system.”
François Roudier, Secretary General of the International Organization of Motor Vehicle Manufacturers, highlighted the unsustainable nature of the price war, warning that prolonged losses could destabilize the entire automotive ecosystem.
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