Price wars in industries can have both positive and negative effects. When similar companies compete, it can lead to consumer expectations of lower prices. However, when a player with a cost advantage enters the market, it can shift consumer loyalty towards the better-value product.
In the auto industry, a price war has emerged, primarily driven by Tesla, resulting in increased sales of electric vehicles (EVs) in China. China’s top-selling cars in June were mostly electric, with Tesla’s Model Y leading the pack. This price war has prompted the government to intervene, urging automakers to pledge fair competition.
While the battle for market share has damaged the auto industry in China, it has transformed the competitive position of EVs. Electric vehicles like the Tesla Model 3 have become more affordable compared to traditional gasoline-powered cars. Battery and plug-in hybrid vehicles now account for 37% of sales in China, surpassing earlier expectations and government targets.
Battery makers are also benefiting from this shift, with increased profitability due to improved cost structures and reduced prices for key materials like lithium carbonate. This trend suggests that the electric vehicle market’s growth and profitability are sustainable, signaling a significant shift towards electrified transport, not only in China but globally.