China Carmakers Reignite Price War as Sales Slump Deepens

1. In the wake of the Spring Festival holiday, major automakers in China have initiated another round of price cuts and financing incentives to address mounting inventories amid slowing auto sales—the latest sign of rising pressure in the world's largest car market. Several major brands, including SAIC General Motors (Buick), SAIC Audi, GAC Toyota, and Dongfeng Nissan, have each announced price reductions or limited-time purchase incentives across various models, with discounts ranging from 5,000 to 30,000 yuan ($724 to approximately $4,346). Entry-level vehicle prices have dropped to as low as 65,900 yuan ($9,540) in some cases. [para. 1][para. 2]

2. The wave of discounts reflects deeper industry challenges, as sales weaken following the expiration of government subsidies, resulting in an accumulation of unsold vehicles despite manufacturers' efforts to stabilize the market. This surplus inventory has forced many automakers and dealers to turn more aggressively to promotional campaigns. [para. 3]

3. Foreign carmakers are also involved in these initiatives. Tesla extended its zero-interest loans up to five years, offered seven-year low-interest loans, and provided an 8,000 yuan ($1,160) insurance subsidy for its Model 3. BYD followed suit, introducing similar incentives with low-interest loans of up to seven years on selected models, highlighting the competitive environment as manufacturers vie for consumer attention in a subdued market. [para. 4]

4. The market's struggles are illustrated by a sharp decline in retail passenger vehicle sales: in January, sales plummeted by 13.9% year-over-year to 1.54 million units, according to the China Passenger Car Association (CPCA). Experts suggest the real market contraction could be even more pronounced because January was a full sales month this year, unlike January 2025, which will be partially disrupted by the Spring Festival holiday. [para. 5][para. 6]

5. Inventory levels have emerged as a key indicator of the industry's downward trajectory. As of the end of January, national passenger vehicle inventory stood at 3.57 million units—a significant increase of 580,000 units compared to the same time last year, as reported by Cui Dongshu, CPCA's secretary-general. [para. 7]

6. While government trade-in subsidies had helped keep inventories stable through most of 2025, conditions worsened when these subsidies dried up in October. Inventory surged from 3.41 million units in October to 3.79 million in November, before slightly easing to 3.65 million in December. Although levels dipped a little in January, they remain historically elevated. [para. 8][para. 9]

7. The push to maintain production, encouraged by some local governments to support economic growth, may compound inventory woes in early 2026. Dealers have become increasingly hesitant to take on new stock, and automakers themselves now hold a larger share of unsold vehicles—32% of national inventory in January, the highest since early 2023. This signals upcoming challenges for manufacturers tasked with clearing backlogs. [para. 10]

8. Although price wars are typical at the start of the year, the current round of direct price cuts is milder than in previous years, partly due to higher production costs—driven by rising prices for materials like lithium carbonate and memory chips. UBS estimates per-vehicle manufacturing costs have increased by several thousand yuan, dampening the extent of price reductions. [para. 11]

9. Regulatory factors have also restrained drastic discounts. Since 2025, the Chinese authorities have sought to limit "involutionary" competition and have effectively curtailed steep price reductions. As a result, current direct discounts are mainly from foreign and joint-ventured brands, with domestic automakers largely avoiding blanket price cuts. [para. 12]

10. Instead, "hidden" promotions, mostly in the form of financing incentives, have taken precedence. Following the National Financial Regulatory Administration’s policy in March 2025 allowing consumer auto loan terms to be extended from five to seven years, most manufacturers, spearheaded by Tesla, have adopted longer-term, lower-cost loan programs. However, consumer acceptance is mixed, as many buyers still favor shorter, zero-interest loans, citing rapid technological change and infrequent long-term vehicle ownership. [para. 13][para. 14][para. 15]