As a fierce price war threatens the trajectory of the electric vehicle industry in China, officials are considering imposing strict policies to curb what they call “irrational competition” within the industry.
The Chinese government has supported EV development by pouring billions of dollars into the industry over the past decade in order to enable local firms to develop new energy vehicles (NEVs) that can compete globally. This support has allowed many startups to sprout in the industry and develop a variety of low-cost EVs that are competing for dominance on the local market.
However, the competition between those brands has taken an unhealthy turn as firms engage in a price war geared at attracting buyers. Many companies have come up with steep discounts while others urge motorists to trade in their ICE vehicles in exchange for less polluting NEVs.
That cutthroat competition has had a heavy toll, with many firms folding after failing to be profitable in the wake of the race to the bottom as companies slash prices to outcompete one another.
Beijing has taken note and seems to have gotten to a point where the government has had enough of this “involution,” a common description for needless competition that takes everyone nowhere. On Wednesday, top government officials had a meeting that was chaired by the country’s prime minister, Li Qiang. The purpose of the meeting was to find ways to monitor more closely the prices of EVs made locally and to design mechanisms to ensure competition is healthy within the industry over the long term.
Bill Bishop, an analyst and owner of the Sinocism newsletter, said the statement released after the meeting on Wednesday suggests that the government could institute “price controls” on EVs. He added that the statement contained strong language, an indication of the intention of Beijing to intervene as a way of rectifying that unhealthy competition.
It remains to be seen what specific steps the government will take to put a lid on the harmful rivalry that is pushing many firms to the brink of collapse. Competition within the domestic market has been so fierce that a number of firms, such as BYD, have opted to expand their international presence as a way of driving growth.
Any interventions by the government could stabilize the market and benefit even foreign brands like Tesla Inc. (NASDAQ: TSLA) that were being pressured by the unbelievably low prices of local EV models.
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