China Cracks Down on EV Price Wars to Boost Innovation

China’s cabinet has recently unveiled a series of measures aimed at stabilizing the electric vehicle (EV) sector. During a State Council meeting on July 16, Premier Li Qiang emphasized the need to curb “irrational competition” within the domestic market. This directive comes as part of a broader effort to ensure that the EV industry prioritizes innovation and product quality over aggressive discounting strategies.

Officials at the meeting pledged to enforce market order and closely monitor prices to prevent a steep drop that could slow economic growth. The session highlighted the importance of firms focusing on innovation and product quality rather than resorting to deep discounts. The government’s intervention is seen as a necessary step to maintain stability and foster a more sustainable competitive environment within the industry.

The move follows top-party directives to temper aggressive price slashing among EV makers. While China is on track to meet its official 5% goal for expansion in 2025, officials have warned that a steep drop in prices could slow this growth. The government’s emphasis on innovation and quality is a response to the current market dynamics, where intense competition has led to a significant portion of new EVs being priced lower than gasoline cars. This price competition, driven by subsidies and aggressive marketing strategies, has raised concerns about the sustainability of the industry.

In a separate announcement on July 15, the Commerce Ministry introduced new export rules for key battery technologies. Any overseas transfer of eight key battery manufacturing technologies will now require a government license. This rule applies to exports via trade, investment, or technical partnerships and takes effect immediately. The measure aims to cement China’s leading position in EV battery production and discourage Chinese automakers from establishing factories abroad.

Chinese firms have made significant breakthroughs in battery design over the last five years, cutting costs while extending driving range. The latest generation of lithium-ion cells relies on iron and phosphate, a cheaper and safer mix compared with nickel, cobalt, and manganese blends. These batteries are crucial to China’s ability to build electric vehicles at prices below those of many petrol and rival EV models overseas. The EU has pressed Chinese battery and car producers to establish factories within its borders, a condition for constant sales growth.

The US is more cautious but is reviewing plans for two Chinese battery plants in Michigan. If approved, those plants would be among the first major Chinese battery facilities in the United States. These new battery export rules come almost three months after Beijing introduced export licenses for seven rare earths and magnets. This move has already shaken Western and Japanese firms that rely on those materials for robots, advanced electric motors, and cars.

Shenzhen-based BYD, which recently overtook Tesla as the world’s largest electric car manufacturer, unveiled its lithium iron phosphate (LFP) battery five years ago. This design replaced expensive NCM with phosphate and iron to reduce fire risks. Rival Contemporary Amperex Technology Co. Limited (CATL) in Ningde unveiled a similar design shortly after. In comparison, companies from South Korea, Germany, Japan, and the United States still mainly rely on NCM batteries.