Auto competition shifts from price wars to product strength

China's auto market is undergoing a period of intensified competition, with the focus gradually shifting away from large-scale price cuts toward product capability and structural adjustment.

While competition remains fierce, price wars are no longer the core strategy for most automakers, said Joel Ying, analyst for China Auto & Parts and Technology Research at Nomura.

Instead, companies are increasingly relying on upgrades in product performance, design and technology to attract consumers. "Price adjustments still exist," said Ying, "but the main direction is to use product strength to stimulate demand."

This shift comes as government subsidy policies are tightened and regulatory supervision becomes stricter, making quality and sustainability more important than sheer sales volume.

However, Ying cautioned that this transition has also increased operational pressure on automakers.

Measures aimed at addressing excessive competition — such as payment term commitments and pricing compliance guidelines — are expected to take time to show results.

"I believe their impact will be reflected in the second half of 2025 and into 2026," he said, adding that the effects are difficult to quantify. At the same time, rising costs related to product upgrades and component price fluctuations have further constrained margins, leaving manufacturers with limited room to raise or cut prices, considering the fierce competition environment. 

Against this backdrop, Ying said competition in China's auto industry is likely to become more selective, with companies prioritizing market share while being more cautious about profitability.

Both domestic and international players are under pressure to find new ways to break through, while managing higher costs and tighter pricing conditions.

For international automakers, the changing competitive environment has accelerated efforts to localize research and development in China.

Over the past two years, German and Japanese brands have expanded local R&D capabilities, increased the use of Chinese supply chains and partnered with domestic intelligent driving technology providers.

Ying described these efforts as positive and necessary responses to the market.

"I recognize that joint-venture automakers are making proactive changes, especially under the concept of 'In China, for China'," he said. By leveraging China's industrial chain, these companies aim to develop products better aligned with local consumer preferences.

However, Ying noted that the impact of these efforts should be viewed realistically. While localized models may help offset declining sales of traditional fuel vehicles, he said it would be difficult for joint-venture brands to regain significant market share.

"The focus of China's auto market has shifted to domestic brands," Ying said, adding that core technologies and development direction are now largely driven by Chinese automakers and supply chains.