China’s red-hot electric vehicle (EV) sector is now raising red flags—not only for automakers but for regulators concerned about overcapacity, margin compression, and market destabilization. The price war among China’s top EV players—XPeng, BYD, NIO, Zeekr, and now Xiaomi—has deepened to a level that the country’s auto association warns is “unsustainable.”
The Price War’s Toll
In June 2025, multiple automakers cut prices aggressively to protect or grow their market share. BYD, which sold a record 377,000 vehicles, slashed prices by as much as 34% on certain models. XPeng reported a 224% year-over-year sales increase, while Xiaomi’s newly launched YU7 SUV amassed over 280,000 pre-orders in less than an hour.
However, the impressive sales figures mask a growing issue: shrinking profit margins driven by relentless price competition. Analysts estimate that many of these price cuts are being made at or below cost, pushing automakers into a volume-over-margin race that could backfire.
Regulatory Response Begins
China’s Ministry of Industry and Information Technology (MIIT) and the CAAM have voiced alarm over increasingly aggressive price-cutting tactics, warning they could destabilize the EV sector if left unchecked. Officials have reportedly held closed-door discussions with automakers about price discipline, fearing that sustained discounting could:
- Lead to widespread financial losses
- Hurt innovation investments
- Accelerate the collapse of weaker EV startups
- Create an unsustainable race to the bottom
Lessons from the Solar Industry
China’s solar manufacturing sector in the 2010s offers a cautionary tale. Massive subsidies and aggressive price competition led to a glut, falling prices, and the eventual collapse of several key players. A similar pattern may be unfolding in EVs, where overcapacity looms and government subsidies are being rolled back.
What’s Next for the EV Ecosystem?
- Possible price floor regulations: To prevent dumping practices
- Consolidation wave: Smaller automakers could be absorbed or exit entirely
- Tech race shift: More focus on software, ADAS, and battery innovation as pricing becomes unviable long-term
- Consumer caution: Buyers may delay purchases anticipating deeper discounts, further destabilizing sales cycles
