Step into any major auto mall in a Chinese city, or browse an online car marketplace here, and you’re immediately hit by a sensory overload. Rows upon rows of gleaming vehicles, a dizzying array of brands – from established global giants to ambitious local upstarts – all vying for attention. Aggressive salespeople tout deals, promotions, and financing options that seem almost too good to be true. It’s a spectacle of consumer choice, a testament to China’s manufacturing prowess, and a market that feels like it’s permanently in fifth gear. Yet, beneath this exhilarating, and frankly overwhelming, surface lies a growing unease, a sense that perhaps this automotive abundance has become “too much of a good thing.”
To understand the current tremors in China’s auto world, you first need to get acquainted with a term that’s on everyone’s lips here: “内卷 (nèijuǎn).” Pronounced “nay-joo-anne,” it’s a word that has leaped from obscure academic papers into the everyday slang of students, office workers, and now, captains of industry. While often translated as “involution,” its contemporary meaning captures a specific kind of intense, often unproductive, internal competition. Imagine a scenario where everyone is pedaling furiously on a stationary bike – a lot of effort is expended, but no one really gets further ahead.1
Originally, “neijuan” was an anthropological term describing a cultural or social pattern that, having reached a certain stage of development, ceases to evolve into new forms and instead only becomes more internally complex and elaborate.2 Think of an art form that keeps adding more intricate details to the same basic design, becoming incredibly refined but not fundamentally new. This is distinct from, though related to, “内耗 (nèihào),” which means internal friction or exhaustion – a crisis that might not last. “Neijuan,” on the other hand, can be a long, drawn-out state of affairs, a kind of “low-level complexity” where participants might even be engrossed in the intricate dance of competition without achieving genuine progress.2
For an American audience, picture the hyper-competitive admissions race for elite universities, where students pile on extracurriculars and AP courses, pushing themselves to the limit, yet the number of available spots remains largely the same. Or consider a corporate “rat race” where employees work ever-longer hours for a dwindling chance of promotion. That’s the essence of “neijuan.”
This concept maps almost perfectly onto the current state of the Chinese auto market. It has become a battleground where a multitude of brands, often with offerings that consumers perceive as increasingly similar in core aspects, are locked in a fierce struggle. When genuine differentiation becomes hard to achieve or communicate, especially in crowded segments, companies often resort to the most basic lever: price.2 This has led to a dangerous cycle, a “neijuan” of relentless cost-cutting and price slashing, pushing the entire ecosystem to its limits. The sheer pervasiveness of the term “neijuan” in China today also reflects a broader societal awareness and fatigue with such high-pressure, diminishing-return environments. The auto industry’s very public struggle with it, therefore, isn’t just an industry story; it’s a relatable microcosm of wider anxieties about sustainable development and the quality of growth.
And that brings us to the heart of the matter: a growing chorus within China’s vast automotive sector is saying, “Enough!” There’s a palpable pushback against the relentless price wars, a realization that this race to the bottom is unsustainable and, ultimately, damaging. The industry is grappling with the uncomfortable idea that cars, even in this hyper-competitive market, “cannot be sold too cheaply.”
It’s a paradox. Consumers, naturally, welcome lower prices, at least initially. Who wouldn’t want a brand-new car for less? But the long-term health of the industry, its capacity for innovation, the viability of its supply chains, and even the ultimate interests of consumers – in terms of quality, service, and future choice – are all on the line.
Over the course of this article, this blog will delve into this complex situation. We’ll explore the history and impact of these price wars, examine the industry’s and government’s reactions, look at the new strategies automakers are trying to adopt, and consider what the future might hold for the world’s largest and most dynamic automotive market. Fasten your seatbelts; it’s going to be quite a ride.
Price competition in the Chinese auto market isn’t exactly a new phenomenon. Veterans in the industry might recall earlier skirmishes, like Shanghai General Motors’ “Breakthrough 2005” campaign back in May 2004, which saw significant price reductions on models like the Buick Regal and GL8, with an average cut of 8% across its lineup.3 However, what the market has witnessed recently is an escalation of a different magnitude, transforming routine competitive adjustments into an all-out, no-holds-barred war.
The fuse for the latest, and arguably most intense, round of price wars was lit in early 2023. Many observers point to Tesla’s aggressive price cuts in January of that year as the spark that ignited the inferno.4 This wasn’t just a seasonal sale; it was a strategic broadside that sent shockwaves through the industry. The American EV pioneer slashed prices on its popular Model 3 by as much as 36,000 RMB and the Model Y by up to 29,000 RMB.5
What followed was a cascade. Like dominoes toppling in rapid succession, a host of other brands – encompassing both New Energy Vehicle (NEV) specialists and traditional Internal Combustion Engine (ICE) manufacturers, domestic powerhouses and international joint ventures – felt compelled to respond.4 The price-cutting frenzy that began in early 2023 continued with unabated ferocity throughout the year, spilling over into 2024 and showing little sign of abating even by early 2025.3
The sheer scale of this price war is staggering. In 2024 alone, over 220 distinct car models saw price reductions, a significant jump from the roughly 150 models that had their prices cut in 2023.3 This wasn’t just a trimming of margins; it was a fundamental reshaping of the price landscape. As recently as May 2025, one automaker’s decision to slash prices on 22 of its models by up to 53,000 RMB triggered fears of yet another fresh wave of cuts, prompting an immediate response from the China Association of Automobile Manufacturers (CAAM).8
This high degree of reactive strategy, where one company’s move forces a dozen others to follow suit, is a classic symptom of a market where perceived differentiation is low, especially in high-volume segments. Companies feel they have no choice but to match price cuts to remain in the consumer’s consideration set, rather than being able to command a premium based on unique selling propositions. This is “neijuan” in action – a frantic dance where everyone matches each other’s steps, often to a tune of diminishing returns.
The battlefield is crowded, but a few key players and their strategies stand out:
The following table provides a snapshot of some key moments in this escalating price war, illustrating the breadth and depth of the cuts:
Table 1: Key Price War Skirmishes & Escalations (2023-Early 2025)
| Date | Automaker/Brand | Model(s) Affected | Nature of Price Cut/Incentive | Reported Price Reduction (RMB/Percentage) | Source(s) |
| Jan 2023 | Tesla | Model 3, Model Y | Direct price reduction | Model 3: up to 36,000; Model Y: up to 29,000 | 5 |
| Early 2023 | BYD, NIO, XPeng, etc. | Various NEV models | Follow-up price adjustments, new “value” editions | Varied | 5 |
| Nov/Dec 2023 | Tesla | Model Y RWD | Price reduction | 10,000 RMB (down to 239,900 start) | 10 |
| Feb 2024 | BYD | Qin Plus DM-i “Glory Edition”, Destroyer 05 | New edition launch with significantly lower price | Starting price reportedly in 70,000s (e.g., 79,800) | 11 |
| Throughout 2024 | Over 40 automakers | Over 220 models (NEV & ICE) | Price cuts, discounts, incentives | Varied; average transaction price down | 3 |
| July 2024 | SAIC-Volkswagen | Lavida, Tiguan, ID.3 | Direct price reduction, comprehensive offers | Up to 59,000 RMB; Lavida from 69,800, ID.3 from 125,900 | 15 |
| May 2025 | Unnamed automaker | 22 models | Limited-time price reduction | Up to 53,000 RMB | 9 |
| Ongoing | Various Japanese Brands | e.g., Toyota Accord, Nissan Sylphy (indicative) | Price cuts to maintain share | Accord to ~140,000; Sylphy to ~80,000 (terminal prices) | 16 |
What fueled this inferno of price cuts? Several factors converged to create a perfect storm:
The confluence of these factors created an environment where price wars became not just a tactic, but a seemingly unavoidable reality. This intense domestic competition, however brutal, is also inadvertently forging Chinese NEV companies that are exceptionally lean, agile, and aggressive. This “trial by fire” at home could, paradoxically, make them formidable competitors as they increasingly venture into international markets, equipped with highly price-competitive products and a resilient mindset.
The initial thrill of snagging a bargain-priced car quickly gives way to a sobering reality when the broader consequences of these relentless price wars are tallied. The “neijuan” in China’s auto market hasn’t just been a spectacle of competitive fervor; it’s left a trail of economic damage across the entire industry ecosystem, from the factory floor to the showroom, and even into the driveways of consumers.
The most immediate and glaring impact has been on profitability. The Chinese auto industry, once a reliable engine of profit, has seen its margins squeezed dramatically. In 2024, the overall profit margin for the sector was a meager 4.3%.2 This figure reportedly eroded further to just 4.1% in the first quarter of 2025 22, with some analyses even citing 3.9%.2 To put this in perspective, this is significantly below the average profit margin of 5.6% for downstream industrial enterprises.22
Even industry giants haven’t been immune. BYD, despite its sales prowess, saw its net profit growth lag behind its sales revenue growth in the first quarter of 2024, an early sign of the margin pressure.25 Other major players reported more direct hits: Changan Automobile’s net profit plummeted by over 80% in the first quarter of one recent year, while GAC Group saw its Q1 net profit decline by 20.65%.5 For some NEV startups, the situation is even more dire; it’s been estimated that NIO, for example, was losing approximately 130,000 RMB (around $18,000 USD) for every car it sold during certain periods.25
This financial strain inevitably cascades down the supply chain. Automakers, desperate to cut costs, have been pressuring their component suppliers. Reports indicate that procurement prices for parts have been forced down by 10-15% annually in recent years.6 This relentless squeeze impacts the financial health and viability of these suppliers, some of whom, like Xusheng Group (which saw a 41.7% drop in net profit in 2024) and YUNNEI Power (which reported losses), are publicly feeling the pain.26
If automakers are feeling the pinch, their dealers are often bearing the full brunt of the price war. These businesses, the frontline interface with customers, have found themselves in an increasingly precarious position. They face a toxic cocktail of intensified operating pressure, evaporating profitability, burgeoning inventories of unsold cars, and critically tight cash flow.22
A particularly damaging phenomenon has been “price inversion,” where dealers are forced to sell cars for less than they paid the manufacturer to acquire them. For many, new car sales, traditionally a core part of their business, have transformed into a loss-making activity.27 The primary motivation to sell under these conditions is often to meet manufacturer-set sales targets to qualify for year-end rebates, a gamble that doesn’t always pay off.
The result has been a wave of dealer distress, with widespread bankruptcies and network withdrawals shaking the retail landscape. Heartbreaking stories abound: Guangdong Yongao, a dealership group with a 27-year history, saw multiple 4S stores (the common term for full-service dealerships in China, covering Sales, Spare parts, Service, and Surveys) go bankrupt in early 2024.27 In Henan province, Weijia Auto Group, a major regional player, simultaneously applied to withdraw eight of its Dongfeng Nissan dealerships from the network.27 Jiangsu Senfeng Group, another large dealer, experienced a “爆雷 (bàoléi)” – a colloquial term for a sudden financial explosion or collapse – affecting over 60 of its dealerships across 25 brands.27 According to the China Automobile Dealers Association (CADA), an alarming 50.8% of dealers reported losses in the first half of 2024.27 Some estimates suggest that as many as 4,000 4S stores either withdrew from their networks or closed down entirely during 2024.29
The financial hemorrhaging has more insidious long-term consequences. Reduced profits directly translate into reduced capacity for investment in research and development (R&D) – the lifeblood of innovation and future competitiveness in the fast-evolving auto industry.9 This is particularly critical as vehicles become more technologically complex, relying on advancements in electrification, autonomous driving, and connectivity.
Moreover, the intense pressure to cut costs creates a dangerous temptation to sacrifice quality in the pursuit of volume – a strategy known in Chinese as “以价换量 (yǐ jià huàn liàng),” or exchanging price for sales volume.9 This can manifest in various ways, from using lower-grade materials to cutting corners in manufacturing processes or sourcing cheaper components from suppliers who are themselves under immense financial pressure.
The erosion of dealer financial health also directly impacts after-sales service. Financially distressed or closed dealerships inevitably lead to a deterioration in the quality, timeliness, and reliability of maintenance and repair services.6 This is a major concern for all car owners, but it’s especially critical for NEV owners. The advanced software, intelligent features, and complex battery systems in modern NEVs rely heavily on continuous, high-quality after-sales support for updates, diagnostics, and specialized repairs.9 If a dealership closes or an automaker goes bankrupt, owners can be left stranded, with crucial software updates or specialized maintenance becoming unavailable.
This entire scenario points to a vicious cycle: lower prices lead to lower profits, which in turn lead to lower investment in R&D and potentially compromised quality. If products become less differentiated due to stunted innovation or perceived lower quality, automakers may feel even more compelled to compete on price, further exacerbating the problem. This is the “neijuan” trap in its most destructive form, a downward spiral that benefits no one in the long run.
While the initial allure of a cheaper car is undeniable, the fallout from these price wars suggests that the consumer’s victory might be short-lived, or even illusory. Evidence is mounting that the “race to the bottom” is beginning to negatively impact the ownership experience.
The China New Energy Vehicle User Satisfaction Index, for instance, registered a decline in 2024, marking the second consecutive year of falling satisfaction scores.22 More tangibly, consumer complaints related to automobiles and auto parts surged by a staggering 50.24% year-on-year in the first quarter of 2025.22 The NEV sector was specifically called out by consumer associations for problematic marketing practices and deficiencies in after-sales service.22 Common grievances from NEV owners include battery failures (such as unexpected power loss or charging issues), discrepancies between advertised and actual driving range, poor performance in low-temperature conditions, and generally inadequate or unresponsive after-sales support.29
Beyond these direct issues, persistent price wars can also cultivate a “wait-and-see” attitude among potential buyers. If prices are constantly falling, consumers may delay their purchases, hoping to snag an even better deal later on.24 A 2024 McKinsey study revealed that over 80% of Chinese consumers surveyed said the price wars had not positively influenced their car purchase decision, and a notable 16.4% reported that the price wars had actually caused them to delay their purchase.6 These consumers, colloquially dubbed “等等党 (děngděngdǎng)” – the “wait-and-see party” – may sense the underlying instability and potential long-term downsides, such as compromised quality or unreliable service, that can accompany unsustainably low prices.
The dealer crisis represents a critical systemic weakness. The collapse of dealerships doesn’t just impact sales figures; it severely undermines the after-sales service infrastructure. This is especially crucial for the increasingly complex NEVs that depend on a robust service network for software updates, battery management, and specialized repairs. A thinning service network can lead to longer wait times, difficulty accessing qualified technicians, and ultimately, a frustrating ownership experience, potentially damaging brand reputations and eroding consumer trust in the long term.
The consequences of the auto industry’s “neijuan” extend beyond corporate profit and loss statements. There’s a human and broader economic cost as well. Several major automotive groups have reportedly implemented layoffs, with some workforce reductions numbering in the thousands, as they struggle to cut costs in the face of dwindling margins.9 Furthermore, regions and cities in China that are heavily reliant on the automotive industry for employment and economic activity are beginning to feel the strain, with reports of declining fiscal revenues and tax receipts as the sector’s profitability wanes.9
The following table summarizes the widespread impact of these price wars:
Table 2: The Domino Effect: Impact of Price Wars on the Auto Ecosystem
| Affected Stakeholder | Key Impacts | Illustrative Data/Examples | Source(s) |
| Automakers | Reduced profitability, pressure on R&D investment, risk of brand dilution | Industry profit margin at 4.1% (Q1 2025); Changan Q1 profit down >80%; GAC Q1 profit down 20.65%; NIO loss per car ~130k RMB | 5 |
| Suppliers | Price pressure from automakers, reduced margins, risk of compromised quality, financial instability | Component procurement prices down 10-15% annually; Xusheng Group profit down 41.7% (2024) | 6 |
| Dealers | Severe financial pressure, price inversion (selling at a loss), high inventory, bankruptcies, network exits | Over 50% dealers lost money (H1 2024); ~4,000 4S stores closed/exited (2024); Guangdong Yongao bankruptcy | 22 |
| Consumers | Short-term price benefits; long-term risks of lower quality, poorer after-sales service, reduced innovation, “wait-and-see” behavior | NEV satisfaction down; auto complaints up 50.24% (Q1 2025); 16.4% delayed purchase due to price wars | 22 |
| Employees / Regions | Layoffs, wage pressure, declining fiscal revenue for auto-dependent regions | Major auto groups implementing layoffs; reports of declining local tax revenues | 9 |
As the damaging consequences of the unending price wars became increasingly apparent, a counter-movement began to stir within China’s automotive industry and among its regulators. The sentiment that “cars cannot be sold too cheaply” started to gain traction, leading to calls for sanity and a more sustainable competitive environment. This marked the beginning of an “anti-involution” pushback.
Leading the charge has been the China Association of Automobile Manufacturers (CAAM), the country’s most prominent auto industry body. Alongside other industry organizations, CAAM has repeatedly voiced concerns about the “irrational” nature of the price wars and the detrimental effects of what it terms “内卷式 (nèijuǎnshì)” or “involution-style” competition.2
A significant recent move came in late May 2025, when CAAM issued an initiative titled “Regarding Maintaining Fair Competition Order and Promoting Healthy Industry Development.” This proposal explicitly called on auto enterprises to adhere strictly to fair competition principles. It advocated against practices such as selling products below cost to monopolize the market or squeeze out competitors, and warned against using misleading advertising or other tactics that disrupt market order and harm the fundamental interests of both the industry and consumers.8 The core message from CAAM and many industry insiders has been consistent: relentless price wars jeopardize long-term development, stifle R&D investment, compromise product quality and after-sales service, and ultimately, are detrimental to consumer interests.9
The desire for stability, however, led to a notable misstep that highlighted the complexities of taming the price war beast. In July 2023, CAAM orchestrated a high-profile event where 16 major automakers – a veritable who’s who of the Chinese auto market including Tesla, BYD, NIO, XPeng, Geely, and Chery – signed a “Pledge to Maintain Fair Market Order”.32
The pledge contained several commitments, but one clause, in particular, raised immediate red flags: “Not to disrupt fair market competition order with abnormal prices”.32 While perhaps well-intentioned, this vague wording sparked widespread concern among legal experts and market observers. It was seen as potentially violating China’s Anti-Monopoly Law (AML), as it could be interpreted as an attempt by major competitors to collude on pricing, effectively forming a price cartel.32 The definition of “abnormal prices” was unclear, and the idea of major players jointly agreeing not to engage in certain pricing behaviors sounded alarm bells.
The backlash was swift. Within a mere 48 hours, on July 8, 2023, CAAM issued a statement retracting the controversial price-related clauses from the pledge.32 The association acknowledged that the wording regarding “abnormal prices” was “inappropriate” and contrary to the spirit of the Anti-Monopoly Law. It then urged the signatory companies, and indeed all auto manufacturers, to strictly abide by the AML, set their prices independently, and engage in fair competition.35
The incident was a stark illustration of the tightrope walk the industry faces. On one hand, there’s a desperate need to halt the mutually destructive race to the bottom. On the other, any coordinated action that even hints at price-fixing runs afoul of robust anti-monopoly regulations. The fact that some joint venture brands, like those under Volkswagen, reportedly proceeded with price adjustments on the very day the original pledge was signed, further underscored the difficulty of enforcing any kind of voluntary price truce in such a cutthroat environment.33 This episode demonstrated a fundamental tension: the industry’s yearning for stability clashed directly with the legal framework designed to ensure vigorous competition. It strongly suggested that top-down, industry-led price controls were not a viable path forward.
The Chinese government, while keen to see its NEV sector flourish, has also begun to signal its unease with the “involution-style” competition. The Ministry of Industry and Information Technology (MIIT), a key government body overseeing the auto sector, has publicly expressed its support for CAAM’s later, more nuanced initiatives aimed at fostering fair competition and has stated that it will increase efforts to regulate and rectify unhealthy competitive practices.8
There’s a discernible shift in the official narrative. While speed and scale in NEV development were once paramount, there’s now a growing emphasis on the stability and order of the industry’s development, as well as its harmonious coordination with the global automotive landscape.9 High-level government meetings and policy documents have begun to speak of the need for “综合整治 (zōnghé zhěngzhì),” or “comprehensive rectification,” of “内卷式恶性竞争 (nèijuǎnshì èxìng jìngzhēng)” – involution-style vicious competition.36
What might this “comprehensive rectification” entail? Industry experts like Dong Yang, a former executive vice president of CAAM, anticipate that future government actions could include stricter enforcement against illegal activities such as false advertising or malicious smearing of competitors. Another potential area of focus could be tackling issues like chronically overdue payments from automakers to their parts suppliers. By ensuring suppliers are paid on time, the government could indirectly limit the ability of some automakers to fund prolonged price wars on the backs of their supply chain partners.9 The government’s stance appears to be evolving towards creating a level playing field and ensuring fair play, rather than directly intervening in pricing decisions, especially after the pledge incident. The focus is on “规范竞争秩序 (guīfàn jìngzhēng zhìxù)” – standardizing competitive order – and “维护公平的竞争环境 (wéihù gōngpíng de jìngzhēng huánjìng)” – maintaining a fair competitive environment.36
Interestingly, not everyone in the industry views “neijuan” or intense price competition in the same negative light. The debate over whether this hyper-competition is a destructive curse or a necessary crucible for forging stronger companies is alive and well in executive suites across China.
Voices Against Aggressive Price Wars:
Voices Seeing “Juan” (Competition) as Necessary or Even Positive:
This divergence in opinions is telling. It’s not merely a philosophical disagreement but often reflects the varying market positions, cost structures, and strategic outlooks of their respective companies. Automakers with significant scale advantages, robust vertical integration (like BYD, which makes its own batteries and semiconductors), and highly competitive cost structures might view intense competition as an opportunity to consolidate the market and eliminate weaker rivals. Conversely, companies that are struggling with profitability, are more focused on premium segments, or are still building scale may see relentless price wars as an existential threat.
The following table summarizes these differing executive perspectives:
Table 3: “To Juan or Not to Juan?” – Executive Stances on Price Competition
| Executive Name | Company | Stated Position on “Juan”/Price Wars (Quote/Summary) | Potential Rationale (Market Position/Strategy) | Source(s) |
| Yin Tongyue | Chery Automobile | “Price war is my least favorite word… I was kidnapped… this is not a direction.” Dislikes price wars, sees them as painful and contrary to sustainable development. | Focus on building brand value and potentially facing margin pressure from aggressive discounters. | 22 |
| Zeng Qinghong | GAC Group | “Sales volume went up with price wars, but profits declined.” Highlights the negative impact of price wars on profitability. | Experiencing direct profit erosion due to participation in price competition. | 5 |
| Li Shufu | Geely Holding | Warns that brutal price wars lead to “cutting corners, producing fakes.” Advocates for competition based on value, technology, quality, service, brand, and ethics, not just price. | Aims for higher value segments and sustainable growth, concerned about the long-term damage of pure price competition to industry standards. | 37 |
| Wang Chuanfu | BYD | “Juan is competition… all entrepreneurs must embrace and participate in competition to stand out.” Views intense competition as a natural and necessary process. | BYD has leveraged aggressive pricing and scale to gain massive market share; sees competition as a way to further consolidate its position. | 5 |
| Zhu Huarong | Changan Auto | “Inter-company juan is a process of ‘good money driving out bad money,’ the best way for the industry to quickly return to benign competition.” Sees it as a market-clearing mechanism. | Changan is a large state-owned automaker with significant volume; may see consolidation as beneficial for stronger, larger players. | 5 |
The painful hangover from the price war binge is forcing a strategic rethink across China’s auto industry. With profits decimated and the long-term risks becoming undeniable, a consensus is slowly emerging: the race to the bottom is a race no one truly wins. The new game plan, for those who want to survive and thrive, involves shifting the competitive focus from sheer price to genuine value, technological superiority, and brand strength.
Industry leaders, analysts, and even government officials are increasingly vocal that the future of automotive competition in China must be built on a foundation of technology, quality, service, and brand appeal, rather than a singular obsession with the lowest price tag.5 This pivot to value is not just a strategic choice for many; it’s becoming a necessity for survival, especially for brands that cannot match the cost structures of vertically integrated giants like BYD.
The new battlegrounds are being defined by innovation:
A 2025 McKinsey report on Chinese auto consumer insights underscores this shift, suggesting that a “technology war” is likely to be more effective in winning over consumers than a “price war.” While price remains a factor, consumers are showing significant enthusiasm for new models packed with the latest technological features.6 This potential willingness to pay for tangible advancements offers a pathway out of the price-driven “neijuan” for companies that can deliver genuine innovation. This could lead to a more segmented market where brands can command premiums based on clear differentiation in technology, design, or user experience.
One widely anticipated consequence of the intense price wars – and a view endorsed by some industry executives like BYD’s Wang Chuanfu and Changan’s Zhu Huarong – is that they will accelerate market consolidation.5 The brutal financial pressure is expected to weed out weaker, less efficient, or poorly capitalized players, leading to a market with fewer, but stronger, competitors.
The future landscape might resemble that of the global smartphone industry: a handful of dominant giants controlling the mass market, with a constellation of smaller, specialized brands thriving in specific niche segments.23 Industry observers predict that more auto company exits are likely in the coming years as cash flows dry up for those unable to achieve sustainable profitability.23 This “survival of the fittest” dynamic, while painful for those who don’t make the cut, could ultimately lead to a healthier, more rational market structure.
The “neijuan” and the rapid ascent of domestic NEV players have put immense pressure on legacy international automakers operating in China. Brands from Japan, South Korea, the United States, and Europe have all faced significant challenges, including declining sales, shrinking market share, and the difficult choice of whether to engage in costly price wars or risk further erosion of their position.13
The struggles of these established foreign automakers highlight a significant power shift in the Chinese market. Their traditional strengths – such as brand heritage, decades of ICE powertrain expertise, and global scale – are being rapidly devalued in a market that is increasingly NEV-centric and prizes cutting-edge smart features. This is forcing them into uncomfortable but necessary adaptations, including strategic alliances with former or potential competitors, and sometimes, a tactical retreat to more defensible market segments. The rules of the game in China’s auto market have fundamentally changed.
Faced with intense domestic competition and looming overcapacity, Chinese automakers are increasingly turning their gaze outwards, looking to international markets as an avenue for growth and a way to leverage their hard-won strengths in NEV technology and cost-efficient manufacturing.23 This “going global” strategy is evolving from simply exporting finished vehicles to establishing a more comprehensive international presence, including exporting brands, setting up local R&D and sales operations, and even building manufacturing plants in key overseas markets – a shift described as “走出去到走进去 (zǒu chūqù dào zǒu jìnqù),” or from “going out” to “going in”.44
Europe has emerged as a particularly important target market. Chinese automakers see an opportunity to capitalize on their NEV technological advantages in a region where government policies are strongly supportive of electrification but where the supply of locally produced EVs, especially affordable ones, may still be insufficient to meet demand.44 Strategies vary: some are forming joint ventures with established Western automakers (like Leapmotor’s partnership with Stellantis), others are pursuing direct sales and brand-building efforts, and several are investing in local production facilities. BYD, for example, is building a passenger car factory in Hungary and has plans for more in Europe.23 Interestingly, plug-in hybrid vehicles (PHEVs), a segment where Chinese brands have developed strong offerings, are becoming a key export product for the European market, appealing to consumers who may not yet be ready for a full battery electric vehicle.45
This outward push is, in many ways, a direct consequence of the “neijuan” at home. The hyper-competitive domestic market has forged companies that are battle-hardened, innovative, and highly cost-conscious. If these Chinese automakers can achieve significant success abroad, it could, in turn, provide them with the increased scale, financial resources, and international brand recognition to further strengthen their position back in China, creating a positive feedback loop that makes them even more formidable global players.
The seismic shifts occurring in China’s automotive industry – the world’s largest – are not happening in a vacuum. The pushback against “neijuan,” the strategic recalibrations, and the global ambitions of its automakers are poised to send ripples across the international automotive landscape, potentially affecting everything from the price you pay for your next car to the types of vehicles available in showrooms worldwide.
As Chinese auto brands, particularly those strong in NEVs, expand their international presence, consumers in North America, Europe, Southeast Asia, and other markets are likely to see more choices and potentially more competitive pricing. The influx of new, often technologically advanced and price-competitive models from China could spur established global automakers to accelerate their own innovation cycles and perhaps reassess their pricing strategies in their home markets.
The global implications are already becoming visible in trade discussions and policy considerations. For instance, reports have emerged of discussions between the European Union and China regarding the potential setting of minimum prices for Chinese-made electric vehicles sold in Europe, alongside ongoing EU anti-subsidy investigations.45 Such developments indicate that China’s automotive rise is not just an economic story but also an increasingly political one, with the potential to reshape international trade dynamics and trigger protectionist responses.
While there’s a clear and concerted effort to move beyond the most destructive forms of price competition in China, it’s probably premature to declare the end of price wars altogether. The market realities of significant overcapacity and a large number of players vying for market share mean that price will likely remain a key competitive lever, especially in certain segments.4 Some analysts predicted back in late 2023 that price wars could well continue or even intensify in 2024.4
What is more likely to emerge is a more nuanced competitive environment. The across-the-board, desperate price slashing might give way to more strategic and targeted price competition. Market consolidation will undoubtedly continue, with fewer, financially stronger, and more technologically adept players ultimately dominating the landscape.5 The shift towards competition based on value, technology, and brand experience is a long-term endeavor that will require sustained investment and a fundamental change in corporate mindset.
The “anti-involution” narrative in China’s auto sector can be seen as a leading indicator of how other hyper-competitive Chinese industries might evolve as they mature. The challenges faced and the solutions (or lack thereof) found in the automotive space could offer valuable lessons for other sectors, such as consumer electronics or e-commerce, that are also grappling with the pressures of “neijuan.”
China’s auto industry is currently engaged in a delicate and complex balancing act. It’s striving to find a sustainable path forward that reconciles the need for healthy competition with the imperative for innovation, profitability, and genuine consumer value. The “anti-involution” movement is more than just a catchy phrase; it’s a sign of a maturing market grappling with the often-painful consequences of its own supercharged growth and hyper-competition.
The journey is far from over. The ultimate success of this pushback against “too cheap to compete” will depend on a multitude of factors. Crucially, it will hinge on whether Chinese consumers, whose expectations have been shaped by years of intense price competition, are willing to consistently prioritize and pay for perceived value – be it in advanced technology, superior quality, or a compelling brand experience – over simply chasing the lowest possible price tag. The McKinsey consumer survey data, showing a degree of ambivalence or even negativity towards price wars as a purchase driver, suggests a complex consumer psychology at play.6 If a critical mass of consumers does not embrace this shift towards value, the gravitational pull towards price-based competition will remain strong, especially in a challenging economic climate.
The outcomes of this evolution will have profound implications not just for the future of mobility in China, but for the global automotive industry as a whole. The ability of Chinese automakers to innovate beyond just cost, and to build brands that resonate both domestically and internationally, will be key to their long-term success.2 Moreover, the Chinese auto industry’s internal struggle and its determined outward push are set to accelerate the global transition to New Energy Vehicles. This, in turn, will continue to reshape international automotive supply chains, potentially leading to new geopolitical discussions and tensions around trade, technology access, and critical resources. The road ahead is undoubtedly challenging, but it also promises to be one of the most dynamic and transformative stories in the global economy.
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