Price Wars in China Are Breaking the Supply Chain

China’s auto industry is sounding the alarm over what insiders are calling “involution-style” competition - a destructive race to the bottom that many say could damage the industry’s long-term future.

The China Automobile Dealers Association (CADA) reported that car price wars caused a total retail loss of RMB177.6 Billion (RM116.5 Billion) in the first 11 months of 2024. In just the first four months of this year, over 60 car models had their prices slashed.

A separate report from the China Association of Automobile Manufacturers (CAAM) showed that while the industry’s revenue and costs both rose by around 7 to 8 percent between Jan and April, overall profits dropped by 5.1%.

The China Iron and Steel Association criticized automakers for these price wars, saying suppliers like steel producers are severely hit, with some now seeing almost no profits.

To counter this downward spiral, Yang Xueliang, a Senior VP at Geely Holding Group, said the company will stop adding more production capacity. Instead, Geely plans to repurpose its existing global factories.

Yang stressed that joining the price war is not the answer. “Any company that gets caught in involution is headed for failure. Geely won’t follow that path. We will never aim to be the king of involution,” he said. 

Geely wants to focus on better competition based on value, technology, and service - not just price cuts.

Other major automakers seem to agree. Changan Auto has promised to avoid “bottomless competition,” and BYD said it is focusing on innovation to stay competitive.

Since 2024, China’s top authorities have flagged involution as a systemic risk during high-level meetings. Major auto associations have called on carmakers to stop undercutting each other with deep discounts in fear of the trickle down cost implication on parts suppliers.

The Ministry of Industry and Information Technology also warned that price wars don’t produce winners. It has promised stronger enforcement and support for long-term improvements in the sector.

The China Auto Dealers Chamber of Commerce released a proposal calling for reform. They urged companies to stop reckless discounting and return to fair, healthy competition.

Dong Yang, a former executive at the auto manufacturers’ association, said the problem can’t be solved by self-discipline alone. He believes that stronger government action and better regulations are needed to stop harmful practices.

Meanwhile, An Tiecheng, Head of the China Automotive Technology and Research Center, explained that the fierce competition is partly because the market has shifted from growth to saturation. On top of that, export growth is being held back by rising trade barriers, so automakers are fighting harder at home.

These price wars affect more than just car companies. Suppliers are being pushed to lower their prices by 10 to 15% every year. That puts pressure on quality and raises safety concerns.

An said automakers need to stop chasing short-term profits and instead create more transparent and balanced supply chains. Pushing cost pressure down the line will only lead to bigger problems later.

Source: The Star