China has urged its electric vehicle (EV) industry to stop price-cutting and curb production, as officials fear persistent deflation is threatening economic growth. The government has repeatedly warned about 'involution'—a phenomenon of investing more for diminishing returns—in sectors like EVs, which suffer from overcapacity.
President Xi Jinping directly addressed the issue in a blunt speech this month, criticizing provincial governments for overinvesting in strategic priorities such as AI, computing power, and new energy vehicles. On July 23, he stressed the need to break the cycle of involution gripping parts of the economy.
Major EV makers like BYD were summoned to meetings with regulators last month to receive warnings about overcapacity. BYD has repeatedly cut prices on its low-end Seagull model, most recently offering it at nearly 20% below retail price. Great Wall Motors also slashed prices on its Ora 3 car by about 20%.
China has proposed a draft amendment to its pricing law—the first since 1998—aimed at curbing 'unfair pricing behavior' and involution-style competition. However, analysts doubt the measures will be effective. Antonia Hmaidi of Merics noted that few EV companies are profitable and many are tied to local governments unwilling to see them fail.
Hmaidi suggested that one solution to the glut could be increased exports, potentially aggravating trade partners. The EU recently imposed tariffs of up to 45% on Chinese EVs, though Chinese firms have adapted by pushing plug-in hybrids, reaching a 10% market share in the EU by June.
