China’s EV sector doubles down on discounts and cheap financing as growth cools

Electric vehicle makers have kicked off a fresh round of price cuts in mainland China at the start of 2026, despite Beijing’s repeated calls to curb “involution”, as pressure on margins and survival prospects persists.\nGerman luxury carmaker BMW has cut the mainland China price of its all-electric i7 M70L to below 1.6 million yuan (US$225,000) – a reduction of more than 300,000 yuan, or 16 per cent – and lowered prices on other EVs and petrol-powered models by at least 10 per cent, according to its official website.\nChinese smartphone and EV maker Xiaomi, meanwhile, has rolled out a two-month promotion for its first sport utility vehicle, the YU7, offering three years of zero-interest financing.\nFounder and chairman Lei Jun said more than 150,000 YU7s had been delivered since the model debuted in late June last year.\nThese moves were in line with expectations, said Zhang Yichao, an electric-vehicle analyst and partner at consultancy AlixPartners. “The price war will probably last one to two years as penetration has slowed,” he said.\nNew energy vehicles accounted for 59.3 per cent of total passenger car retail sales in November 2025, China Passenger Car Association (CPCA) data showed, up 8.4 percentage points from a year earlier. But the pace of increase was slower than the 9.3 percentage-point rise recorded in 2023.\n\nDomestic brands posted a penetration rate of 79.6 per cent in November, far above the 8 per cent recorded by major joint ventures between Chinese carmakers and foreign carmakers, the data showed.\nBeijing has urged the sector to rein in price wars since July amid deflationary pressures, with even market leader BYD reporting its biggest net profit drop in more than four years in the July-September period.\nAgainst that backdrop, Zhang said carmakers were increasingly competing through other means, including subsidised financing and low-priced models bundled with advanced driver-assistance features.\nFor the first 11 months of 2025, the average selling price of new EVs fell 11.7 per cent year on year to 204,000 yuan, a steeper decline than the 9 per cent drop for petrol-powered cars, according to CPCA data.\nThe gradual phase-out of EV purchase tax breaks from January – a policy worth about 100 billion yuan in subsidies – is also expected to add pressure this year, said Cui Shudong, secretary general of the CPCA.\nUBS has forecast China’s EV wholesale volume growth will slow to 15 per cent this year from 28 per cent in 2025.\nAlixPartners predicted in 2023 that more than 80 per cent of Chinese EV brands could become financially unsustainable by 2030. Entering 2026, Zhang said the firm’s view remained unchanged, adding that the gap between winners and laggards would likely to widen further.\n