China's Electric Vehicle Market Engulfed in Promotional War: Domestic Brands Rise, International Giants Face Challenges

China's Electric Vehicle Market Engulfed in Promotional War: Domestic Brands Rise, International Giants Face ChallengesOn February 11th, China's electric vehicle (EV) market ignited a fierce promotional war. Facing increasingly intense competition and declining delivery volumes, major automakers are rolling out various incentives to stimulate consumption and counter the post-Lunar New Year market recovery challenges

China's Electric Vehicle Market Engulfed in Promotional War: Domestic Brands Rise, International Giants Face Challenges

On February 11th, China's electric vehicle (EV) market ignited a fierce promotional war. Facing increasingly intense competition and declining delivery volumes, major automakers are rolling out various incentives to stimulate consumption and counter the post-Lunar New Year market recovery challenges. This phenomenon reflects a profound transformation in the Chinese new energy vehicle market and poses a serious test for international brands.

Li Si (phonetic), associate director at market research firm Counterpoint Research, noted that weak Chinese consumer data has sparked industry concerns about automakers' inventory digestion capacity. Consequently, major manufacturers launched aggressive promotional campaigns during the Lunar New Year holiday. However, the duration of these promotions remains uncertain. "We'll have to see how long these promotions last," Li Si stated.

The government is also actively promoting new energy vehicle consumption. In January, the Chinese government announced an 810 billion RMB investment during the Lunar New Year to boost consumption of electric vehicles, smartphones, and home appliances. This provided policy support for automakers' promotional activities and stimulated market demand.

Tesla fired the first shot. On the first workday after the Lunar New Year holiday, Tesla announced an 8,000 RMB insurance subsidy for its best-selling Model 3 and a five-year interest-free loan plan. Consumers only need a 34% down payment for the interest-free loan; lower down payments require interest payments. Additionally, Tesla announced in January a similar five-year interest-free loan plan for the refreshed Model Y, deliveries starting in March. Despite setting a sales record in China last year, Tesla acknowledged that future competitive pressure will intensify.

XPeng took a more aggressive approach, announcing a "zero down payment, zero interest" five-year interest-free loan plan for its four models. XPeng heavily promoted this offer on social media, emphasizing it as the only automaker offering such a loan. In fact, XPeng had already launched a zero-down-payment promotion for its G6 SUV in December.

NIO also joined the promotional fray. After January sales plummeted from 31,138 units the previous month to 13,863 units, NIO announced a new five-year interest-free loan plan on February 1st, a more attractive offer than its three-year plan launched in January. Its competitor, Li Auto, introduced a three-year interest-free loan plan last November.

Stephen Dyer, Partner and Managing Director, Joint Head of Greater China at consulting firm AlixPartners, considers these latest incentives "significant," a strategy to "achieve price reductions without directly lowering prices." He noted that unlike North American consumers, Chinese consumers are typically less receptive to price cuts and prefer to wait for larger discounts.

Seasonal factors combined with market competition led to a significant drop in domestic deliveries for several major Chinese EV companies in January compared to December. Even the leading company, BYD, saw its passenger car sales fall from 509,440 units in December to 296,446 units in January. Analysts generally predict a slowdown in the growth of China's new energy vehicle market after rapid expansion in the past few years.

Dyer stated: "We're already seeing some consolidation within the industry. If sales pressure continues this year, I wouldn't be surprised to see more consolidation." Intense market competition and declining market share for traditional foreign brands exacerbate this trend.

Challenging Traditional Foreign Brands

The rapid development of China's new energy vehicle market has presented significant challenges to traditional foreign brands. Domestic companies are aggressively cutting prices to grab market share, while traditional foreign brands are relatively slow to transform in the new energy vehicle sector, making it difficult to effectively cope with fierce market competition. Currently, new energy vehicles (including pure electric and hybrid vehicles) account for more than 50% of China's new car market. Counterpoint predicts this proportion will continue to grow, expecting it to rise from 50% this year to 86% by 2035.

Li Si anticipates more international auto brands will soon launch promotional activities targeting Chinese consumers, but believes these promotions will generally last one to two months, with domestic brands ultimately emerging as the "survivors."

Dyer points out that 20 Chinese new energy vehicle brands ceased operations in 2024, while 13 new brands entered the market, resulting in a net decrease of 7 brands. He added that most of the new and closed brands are domestic Chinese companies, predicting that "American automakers might be the next ones to worry."

The challenges aren't limited to the Chinese market. Ford earned $600 million in China last year and announced last week that its China head will also lead its international markets group. Ford CEO Jim Farley stated in a release that global success "requires leveraging China's export business and competing with Chinese automakers that are expanding rapidly in these markets."

In conclusion, the promotional war in China's electric vehicle market epitomizes intensifying market competition and accelerating industry consolidation. Domestic brands, leveraging strong localization advantages and more aggressive market strategies, are rapidly rising, while international brands face unprecedented challenges and need to actively adjust their strategies to survive in this rapidly changing market. The ultimate outcome of this competition will profoundly impact the future landscape of the global automotive industry.