CAAM urges end to price war in China's auto industry

• Unregulated price wars intensify unhealthy competition and further squeeze corporate profit margins, CAAM warned.
• This also undermines the security of the supply chain, driving the industry into a vicious cycle.

A major Chinese automotive industry association has urged an end to price war to prevent the industry from entering a rat race.

Since May 23, "a certain automaker" has led the way with significant price cuts, prompting other companies to follow suit, sparking new concerns about a price war, according to a statement released today by the China Association of Automobile Manufacturers (CAAM).

Unregulated price wars have intensified cutthroat competition, further squeezing corporate profit margins, which in turn affects product quality and after-sales service guarantees, the statement said.

This not only hinders the industry's healthy development but also harms consumer rights and poses safety risks, CAAM said.

CAAM did not mention the name of the automaker, but it is clearly BYD (HKG: 1211, OTCMKTS: BYDDY), which announced sweeping discounts on dozens of models on May 23, prompting competitors including Chery and Leapmotor (HKG: 9863) to follow suit.

In recent years, China's new energy vehicle (NEV) industry has developed rapidly, accounting for over 40 percent of new vehicle sales, CAAM's statement noted.

"Currently, the industry as a whole is showing a stable and positive trend, with market vitality continuing to be released."

However, in recent times, the industry's profitability has declined, with race-to-the-bottom competition characterized by disorderly price wars being a key factor in the decline in industry performance, the statement said.

CAAM emphasized that investments in product after-sales service guarantees and corporate innovation and development should be continuously increased, while price wars severely impact normal business operations.

This also undermines the security of the industrial chain and supply chain, pushing the industry into a vicious cycle, CAAM warned.

CAAM put forward four initiatives to safeguard the development of China's automotive industry:

1. All enterprises must strictly adhere to the principle of fair competition and conduct business operations in accordance with laws and regulations.

2. Leading companies should not monopolize the market, squeeze out other players, or harm the legitimate rights and interests of other industry players.

3. When companies legally reduce prices to clear inventory, they should not sell goods below costs. They should not engage in false advertising that misleads consumers, disrupt market order, or harm the fundamental interests of the industry and consumers.

4. All companies should conduct self-inspections and rectifications in accordance with relevant national laws and regulations.