Beijing has warned Chinese electric vehicle makers against taking part in counterproductive price wars to protect the country’s economy. As the largest electric vehicle market, China is home to dozens of EV startups and companies engaged in ferocious competition as they each try to secure a portion of the massive Chinese market for themselves.
One of their main tactics involves deploying drastic price cuts to make their products cheaper than their competitors, contributing to rising rates of electric vehicle oversupply and overcapacity in the country.
According to the Chinese government’s statement to local EV manufacturers, this has resulted in “involution” and put the industry’s growth at risk. Beijing says the ongoing price wars among Chinese electric vehicle companies, coupled with surging electric vehicle production, have to stop as the industry’s consistent deflation is risking the country’s economic growth. With several local automakers and startups scrambling to become the next BYD, overcapacity has become a real problem across China’s electric vehicle segment.
This overcapacity has led to a phenomenon called involution, where increased investment and effort provide diminishing returns. Since China’s electric vehicle industry is still in its infancy, involution presents a near‑existential challenge to the industry and could have broader effects on China’s economy.
President Xi Jinping recently addressed the issue in an uncharacteristically blunt speech where he lambasted provincial governments for overinvesting in new energy vehicles, computing power, and artificial intelligence. Although these are industries that Beijing has identified as strategic investment priorities, these sectors also present a significant overheating risk.
In another speech published on social media platform X (formerly Twitter), President Xi emphasized the importance of breaking the involution cycles that are affecting some regions of the country’s economy.
Last month, regulators held meetings with some of the largest vehicle companies in the country where they issued dire warnings about overcapacity in the electric vehicle sector and instructed them to stop engaging in price wars. Shanghai‑ and Beijing‑based independent advisory company Hutong Research also published a note outlining how government agencies throughout the country swiftly reacted to President Xi’s remarks with pledges to enact supply reductions.
The advisory firm noted that the developments pointed to the political class’ attention to the electric vehicle sector’s overcapacity and underscored the true scope of the oversupply problem across China.
Consumers now expect extremely low prices across several industries, partly thanks to the country’s hypercompetitive economy and price‑discount wars among companies desperate to attract customers. Unless EV makers adopt more sustainable pricing and production strategies, the industry risks triggering widespread financial losses, further market instability, and a wave of consolidations.
The efforts being made by the Chinese authorities to rein in overcapacity within the NEV industry could, in the long term, lead to the sustainability of the industry and potentially create a broader market for international clean energy players like PowerBank Corporation (NASDAQ: SUUN) (Cboe CA: SUNN) (FSE: GY2) that are focused on expanding their market presence around the globe.
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