Caixin Weekly | 2025: Beyond Price Wars, the Auto Industry Enters Warring States Period (AI Translation)

财新周刊｜2025年不再只有价格战 汽车业卷入“战国时代”

China's auto market faces a dynamic and uncertain 2025, starting with ambiguity over extending car trade-in subsidies, which has led to a sharp decline in retail sales. To bolster sales volumes, numerous carmakers are implementing aggressive promotions, including price cuts and offering incentives like interest-free loans over three years [para. 1][para. 3]. An initial subsidy policy announcement in April 2024, followed by policy extensions in January 2025, provided a temporary market lift. Without these measures, there could be a decline of at least 1.6 million units according to Xu Haidong from CAAM. The 2025 policies are projected to increase the market by approximately 4.1 million vehicles, with an estimated retail sales surge surpassing 580 billion yuan [para. 4][para. 5].

Various organizations predicted sales reaching between 32 million and 32.9 million units, showing slight year-on-year growth. Manufacturers are targeting the lower bounds of these projections amid ongoing competition and diminishing returns from stimulus measures. Companies are strategizing around a more competitive market driven by product strength and strategic pricing, though price wars remain likely [para. 6][para. 7]. Additionally, Tesla's interest in expanding its autonomous driving capabilities to China in 2025 heightens the competitive environment [para. 9][para. 10].

Autonomous driving technologies, increasingly emphasized in the industry, represent a major area of competition, with Tesla’s Full Self-Driving (FSD) advancing toward surpassing human drivers within months. In contrast, domestic companies are intensifying efforts in smart driving capabilities to counter Tesla's impending entry into China, navigating the complex tech landscape that demands a blend of advanced AI utilization and expansive software capabilities. The competitive environment requires continued adaptation of both traditional and emerging manufacturers amid shrinking profit margins [para. 12][para. 14].

A focal point for Chinese automakers is expanding their global footprint, although aggressive export targets may meet challenges due to varying international conditions. Despite record-breaking exports in 2024, with significant shipments to Russia, future growth may face constraints due to increased taxes and geopolitical complexities [para. 16][para. 18]. Moreover, many Chinese manufacturers are shifting from trade exports to broader international manufacturing operations, with Thailand poised as a significant locale for emerging enterprises, although the transition poses its own set of complications [para. 20][para. 22].

Multinational firms, experiencing sales declines amid competition from burgeoning Chinese brands, are adapting by regionalizing developments and leveraging overseas strategic partnerships to maintain relevance. Volkswagen, for instance, has set ambitious goals with new platforms and models addressing local Chinese demand, aiming to capture higher market share by 2030, amid shrinking domestic advantages [para. 24][para. 26]. These multinational players are leveraging R&D and strategic collaboration to regain footing [para. 28][para. 30].

Overall, while the Chinese auto market navigates a volatile landscape of policy shifts, aggressive competition, and technological advancements, companies brace for a year of intense competitiveness and strategic maneuvering. Market players are not just adjusting domestically but are also refining global strategies, marking a significant evolution as the industry braces for an ongoing transformation shaped by both advancing technologies and intricate geopolitical dynamics [para. 31][para. 33].