China’s auto manufacturers group, the China Association of Auto Manufacturers (CAAM), has retracted a pledge to avoid “abnormal pricing” that it had previously brokered between 16 automakers, including Tesla. This move breaks off a truce in a fierce price war over electric vehicles.
The retractions came as a result of CAAM acknowledging that the agreement violated China’s antitrust law. The intense competitive pressure in the market has led to about two dozen automakers, including Tesla, Xpeng, Geely, Chery Automobile, NIO, and Great Wall Motor, cutting prices in order to stay competitive and stimulate demand.
Global automakers also followed suit, with Ford, Toyota, Nissan, General Motors, Honda, and Stellantis offering discounts on their electric and combustion vehicles. This reflects the growing competition and market share dominance of EVs and plug-in hybrids.
China’s auto market, the world’s largest, is projected to achieve nearly 25 million vehicle sales this year with a growth rate of approximately 3%. The share of EVs and plug-ins is rapidly increasing, with consultancy firm AlixPartners forecasting that this year will be the first where domestic Chinese brands surpass 50% market share.
However, these changes in the market have sparked intense competition over pricing and features, and analysts warn that this threatens industry-wide profitability.
In March, CAAM had urged automakers and local authorities to curb “price-cut hype” in order to ensure the stable development of the industry. Despite this, automakers continued to cut prices, indicating the difficulty of maintaining stability in such a competitive market.
A truce was brokered by CAAM on Thursday, with 16 automakers signing a commitment to avoid abnormal pricing and stabilize the market. However, doubts about the truce arose just a day later when Tesla announced referral payouts and Volkswagen’s joint ventures with SAIC and FAW unveiled price cuts on their EVs in China.
On Saturday, CAAM retracted the pricing pledge, citing a need for more clarity on antitrust law enforcement in the auto industry. Experts argue that the vague language of the pledge made it challenging to determine if it constituted a price monopoly.
This retraction puts pressure on international automakers to restructure their operations in China. Some expansion plans are currently in limbo, and suppliers are experiencing lower margins. Hyundai Motor recently announced the closure of a plant in China and is seeking to sell it, highlighting the difficulties faced by global automakers in the market.
Despite the challenges, China’s EV market is expected to continue growing rapidly. However, AlixPartners predicts that intense competition and excess capacity will lead to a shakeout, with only 25 to 30 out of the 167 registered EV and plug-in hybrid manufacturers surviving by 2030.
Chinese automakers are also targeting growth outside of China, particularly in Europe and Southeast Asia. They have invested $1.4 billion in Thailand since 2020, becoming dominant players in the Thai EV market.
The developments in China’s auto industry indicate the complexity and competitiveness of the market. The retraction of the pricing pledge by CAAM reflects the challenges faced by automakers in maintaining profitability while satisfying consumer demand in the world’s largest auto market.