Unregulated Price Competition Disrupts Industry Ecosystem as Authorities Intervene
The automotive sector faces mounting pressure as cutthroat pricing strategies among manufacturers disrupt normal operations, prompting strong opposition from multiple regulatory bodies. Recent developments reveal growing consensus against what industry experts term “disorderly price wars” that threaten long-term sustainability.
Alarming Statistics Reveal Industry Under Stress
Industry data paints a concerning picture for 2024, with total vehicle production and sales reaching approximately 31.436 million units—a 4.5% year-on-year increase. While new energy vehicles achieved record annual sales exceeding 10 million units, the overall industry profit margin plummeted to just 4.3%. This figure not only trails downstream industrial averages but also marks a decline from 2023 performance levels.
The situation escalated dramatically when a major automaker initiated aggressive price reductions on May 23, triggering widespread imitation across the sector and sparking fears of another destructive pricing cycle.
Industry Association Sounds Alarm on Destructive Practices
The China Association of Automobile Manufacturers (CAAM) identifies reckless price slashing as the primary manifestation of harmful “involution-style” competition—a significant factor eroding industry profitability. Their analysis suggests these practices create a vicious cycle: shrinking profit margins compromise product quality and after-sales service capabilities, ultimately damaging both industry health and consumer interests while introducing potential safety hazards.
On May 30, CAAM issued a landmark Initiative on Maintaining Fair Competition Order and Promoting Healthy Industry Development, outlining critical guidelines:
- Strict adherence to fair competition principles and regulatory compliance
- Prohibition of market dominance strategies that eliminate competitors
- Ban on below-cost sales outside legitimate inventory clearance
- Elimination of misleading marketing practices
- Mandatory self-inspection and rectification per national regulations
Government Backs Reform with Regulatory Muscle
The Ministry of Industry and Information Technology (MIIT) promptly endorsed CAAM’s initiative, pledging enhanced measures against destructive competition patterns. Their comprehensive action plan includes:
- Structural optimization of industry framework
- Strengthened product consistency inspections
- Collaboration with antitrust enforcement agencies
- Implementation of targeted supervisory mechanisms
“We remain committed to preserving orderly market conditions that ultimately protect consumer welfare,” stated an MIIT representative during the policy announcement.
Industry Leaders Unite Against “Involution” at Chongqing Forum
The 2025 China Automotive Chongqing Forum (June 6-7) became a platform for consensus as executives unanimously condemned unhealthy competition models while advocating for intelligent NEV development as the path forward.
Executive Perspectives on Sustainable Competition
Li Xueyong, Executive Vice President of Chery Automobile, emphasized strategic transformation: “Becoming customer-centric enterprises represents our fundamental shift. Globalization remains non-negotiable—only by achieving world-class status can Chinese automakers ensure stable development amid intensifying competition.”
Yang Xueliang, Senior Vice President of Geely Holding Group, framed the debate in legal terms: “Our industry must embody transparency and fairness, particularly regarding safety and environmental compliance. As a nation governed by rule of law, China’s automotive sector should exemplify comprehensive legal governance in consumer-facing industries.”
Yang proposed a three-pillar solution for industry self-regulation:
- Strengthened legal enforcement with guaranteed accountability
- Implementation of corporate self-discipline pacts with credit evaluation systems
- Public participation in supervision mechanisms
He particularly welcomed recent National Development and Reform Commission statements addressing involutionary competition, expressing optimism about policy interventions restoring market order.
Technological Leadership as Antidote to Price Wars
Xiao Yong, Marketing Director of GAC Group’s Aion brand, contextualized the shift: “With NEV penetration exceeding 50%, we’ve entered the ‘value competition’ era. Current involution represents temporary turbulence before inevitable value normalization.” Regarding intelligent driving debates, he asserted, “Safety remains non-negotiable—Aion commits to delivering comprehensive smart driving solutions integrating lidar and high-performance chips.”
The supply chain perspective came from Dr. Murat, CTO of Continental Automotive China: “Price wars create predominantly losers across value chains. While short-term sales boosts might occur, prolonged price-focused competition erodes R&D investment capacity—ultimately stifling innovation and product advancement.”
Path Forward: Innovation Over Depreciation
Industry analysts identify several critical success factors for navigating the current turbulence:
| Challenge | Solution Framework |
|---|---|
| Profit Margin Compression | Value-added services, subscription models |
| Technology Homogenization | Differentiated R&D investment |
| Regulatory Complexity | Proactive policy engagement |
| Consumer Skepticism | Transparent value communication |
As the sector stands at this crossroads, the emerging consensus suggests that manufacturers embracing genuine technological innovation while rejecting predatory pricing will likely emerge as tomorrow’s industry leaders. With regulatory support and maturing consumer preferences, the transition from price warfare to value creation appears not just preferable, but inevitable for long-term viability.
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