The fears that China harbored have finally materialized, as a fierce price war in the world’s largest car market has triggered significant upheaval. Shares of China’s leading automakers plummeted on Monday following an aggressive price cut announcement by BYD, the nation’s largest electric vehicle (EV) company. This strategic move by BYD, which saw the starting price of its cheapest model, the Seagull hatchback, slashed from approximately $10,000 to around $7,765, has sent shockwaves through the industry. Other car manufacturers openly voiced their concerns about this escalating “price war,” fearing the inability to withstand the mounting losses caused by such drastic price reductions. Industry experts in China believe that BYD’s aggressive pricing strategy poses a significant challenge for other companies, many of whom are already struggling to maintain profitability in an increasingly competitive landscape. This intense price war is not only squeezing established players but also putting immense pressure on smaller startups like Neta and Polestar, threatening their very survival.

The automotive industry in China is grappling with multiple stressors, including ongoing investigations into fraudulent sales practices where new cars are being falsely registered to meet targets, then resold as “used” with discounts. This, coupled with the relentless price war, has led to a dismal performance in the stock market, with BYD shares closing down 8.6%, Geely Auto experiencing a 9.5% drop, and other prominent companies like Nio and Leapmotor seeing declines of 3% to 8.5%. The past decade witnessed a boom in Chinese automotive startups, fueled by the rapid growth of the EV segment. However, the current intensified competition has led to a rampant price war, pushing most companies into heavy losses. With over half of the 169 automakers operating in China today holding less than 0.1% market share, and companies now offering premium features like ADAS at entry-level prices, the Chinese auto sector is facing a severe crisis. This precarious situation presents a unique opportunity for India. As foreign companies seek alternative markets away from the intense competition and losses in China, India’s large and rapidly expanding auto market, coupled with its cost-effective labor, government support, and stable demand, makes it an attractive destination. This could lead to the establishment of new manufacturing hubs or export bases in India. Furthermore, any production cuts in China due to the price war could weaken Chinese suppliers’ hold on the international market, thereby opening new avenues for Indian auto parts companies and EV component manufacturers to expand their global reach.