China’s auto industry: dumping prices until shortly before the collapse
China’s auto industry has been quite successful in recent years. However, industry data now shows that a significant proportion of the vehicles sold in recent years were sold at a loss.
State intervenes
However, new government regulations and the dismantling of subsidy measures are now forcing many manufacturers to fundamentally rethink their previous strategy. The country’s auto industry is therefore coming under increasing pressure, according to a report in the magazine CarNewsChina emerges. Despite an impressive rise in the global market, recent data reveals the sector’s economic weaknesses. In the first quarter of 2026, China achieved a 32 percent share of the global car market. For so-called New Energy Vehicles (NEV), which include electric and plug-in hybrid vehicles, the market share was as high as 61 percent. However, behind these successes lies declining profitability. Industry profit margins fell to 4.4 percent in 2025 and reached a historic low of 3.2 percent in early 2026.
According to reports from China, numerous manufacturers have been selling their vehicles for years at prices that were below the actual production costs. The aim was to gain market share and put competitors under pressure. At least 16 car manufacturers took part in comprehensive discount campaigns. It is estimated that more than 70 percent of vehicle sales were made at a loss. Even established companies like Great Wall Motor suffered declining profits even as their sales continued to rise. The Chinese government has now responded with stricter regulations. The sale of new cars below production costs was effectively prohibited in order to prevent the impending collapse of the industry. At the same time, important raw materials for the production of electric vehicles, including lithium compounds, became more expensive. Many manufacturers were therefore forced to reduce discounts and increase their vehicle prices.
Competition is not getting any less
The industry is facing additional headwinds from the gradual withdrawal of government purchasing incentives. The previous tax exemption for the purchase of NEV vehicles was recently reduced to half. The result is a noticeable weakening of domestic demand. This results in mixed prospects for the international automotive industry. On the one hand, the era of extremely cheap Chinese electric cars could be reaching its limits. On the other hand, manufacturers such as BYD, Geely and Chery are significantly increasing their export offensive. They want to achieve further growth with their own logistics structures and production networks abroad. The competition for global leadership in the automotive industry is likely to enter a new phase rather than weaken.
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