Price wars, tech wars: China’s auto bloodbath rages on

After attending the Auto China 2024 exhibition in Beijing, this writer declared that “industrial blood-sport had returned – this time in a far larger arena and with much more at stake. China is repeating the Japanese motorcycle wars, except it’s with cars. It will be bloody and it will revolutionize what a car can be” (see here).

The 2024 Beijing auto show was held at the 106,800 m² China International Exhibition Center Sunyi Venue. The 2026 Beijing auto show is being held at the China International Exhibition Center Sunyi Venue as well as the newly constructed 210,000 m² Capital International Exhibition and Convention Center right next door.

Already too much to absorb in a single day in 2024, this year’s extravaganza occupies three times the floor space. 1,451 vehicles are on display, up from approximately 1,000 two years ago. 181 new vehicles were launched, up from 117 in 2024.

The kill-or-be-killed Battle Royale that is China’s auto industry has only intensified. The government is phasing out EV (electric vehicle) purchase tax exemptions with a 50% reduction for 2026 and complete elimination in 2027. While this has caused domestic car sales to fall 20.3% in the first quarter of 2026, exports have grown 57%, largely making up the shortfall.

There are myriad plotlines in the bloody drama that is the world’s largest auto industry. We can only pull on a few threads in this piece. Competition in China’s car market has only become more savage with technology and price wars the principle murder weapons. The battlefield is fluid. Yesterday’s winners can be surpassed and today’s losers are a model launch away from resurrection.

In the past two years, industry leader BYD stumbled due to uninspired products and regulators coming to the rescue of long-suffering suppliers. While possessing the most vertically integrated supply chain and the most diversified product line, BYD’s cars were outshone in premium segments by offerings from NIO, Xiaomi, XPeng and Huawei and outcompeted by Geely, Chery, Changan and Leapmotor in mass-market price wars.

Regulators put an end to BYD’s questionable financing practices by demanding that suppliers be paid in 60 days (from an abusive 140-180 days), reducing working capital and hobbling the company’s breakneck expansion.

It would, of course, be a mistake to count out BYD, whose long-term strategic investments should start paying dividends. The company invested in its export infrastructure years ago with eight company-owned roll-on-roll-off (RoRo) car transport ships and seven more under construction.

Exports, with 6x the margins of domestic sales, increased 145% in 2025, hitting 1.05 million vehicles (23% of total). BYD’s 2026 exports are on track to exceed its 1.5 million unit target with Jan-Apr 2026 up 60% year-on-year.

BYD recently launched its second-generation Blade Battery, whose 1,500kW “flash charging” can refill the batteries from 10% to 70% in 5 minutes and from 10% to 97% in 10 minutes. BYD has promised to build 20,000 flash charging stations by year’s end. Nationwide rollout of fast charging will eliminate range anxiety for BYD owners, one of the last remaining EV pain points.

Batteries, still 30-50% of an EV’s price, remain a frontier technology with many competitive axes that could be game-changing. Fast charging will likely become table stakes as BYD, CATL and competitors offer their versions.

CATL’s sodium ion technology could cut battery prices in half. Solid state batteries, the Holy Grail, promise to be non-flammable, double range, reduce weight and cost less. Chinese researchers account for 66% of the world’s most cited battery papers. The US is second at 12%.  

In 2024, China’s EV companies were fighting the bling-bling interior wars, saturating cars with touchscreens, massage seats, nappa leather, wireless phone chargers and refrigerators. The horsepower war is now running a similar course.

The average EV in China now has over 270 horsepower versus 150 for internal combustion engine cars. Acceleration, or “pick-up”, is a fundamental differentiator for internal combustion engine cars, instantly noticeable when the light turns green, when turning into traffic or when merging onto the highway.

Perky acceleration (~200 horsepower) is now expected for EVs. 500 horsepower, once the realm of exotic European sports cars, is now an upgrade option on many mass-market models. Premium Chinese EVs are offering ridiculous 1,000-1,500 horsepower. Instant pick-up is nice. Tire scorching 1,000 plus horsepower is overkill, like interiors with half a dozen touchscreens and karaoke systems.

With acceleration “solved”, China’s car engineers have moved on to other, more meaningful challenges. China’s EVs now have noticeably reduced noise, vibration and harshness (NVH), significantly enhancing the driver and passenger experience.

The NVH arms race was kicked off by Li Auto, whose silent interiors and silky smooth operations cemented its premium feel. Chinese car companies approach NVH holistically by scrutinizing every part for NVH reduction rather than relying on heavy insulation.

Motors are engineered to reduce whine. Electrical systems utilize pulse width modulation (PWM) to minimize acoustic noise. Chassis are cast in one piece to eliminate vibration-prone rivets and welds. Windows use multi-layer laminated glass sandwiching polyvinyl butyral (PVB) to reduce outside noise.

Hydraulic bushings in place of rubber reduce high-frequency road shock. Interior noise is actively canceled with speakers and feedback from microphones. These are just some of the engineering sorcery that now give mass market Chinese EVs a premium, low NVH feel.

Advanced suspensions are also becoming ubiquitous. Various levels of this technology are available from continuous dampening control (CDC) to air suspensions to fully active systems. CDC, available on mass-market models from BYD, Geely (Zeekr), Dongfeng (Voyah) and Changan (Deepal), among others, is an electronically controlled shock absorber that can adjust damping forces in real time, optimizing the suspension for comfort, handling and safety.

The next level up is air suspension, which uses electronically controlled air bags in lieu of mechanical springs. Air suspensions, offered on most premium and some mass-market models from BYD (Denza), NIO, Li Auto, XPeng and Huawei (AITO), among others, can adjust height based on speed and road conditions, self-level unevenly loaded cars and deliver far smoother rides.

The non plus ultra of suspension technology is fully active suspension, currently used on flagship NIO, BYD (YangWang), and Li Auto models. While CDC and air suspensions are reactive, fully active suspension uses hydraulic systems to cancel out vertical wheel movement, substantially eliminating bumps and undulations. The system eliminates pitch from acceleration, dive from braking and roll from cornering. They also do party tricks like jump over potholes, dance to music and pushups. Yes, pushups.

Currently, ~80% of China’s EVs come with some level of self-driving capability. 40-45% offer basic L2 self-driving (adaptive cruise control, or ACC, lane keep, auto braking), 20-25% offer L2+ (highway navigation on autopilot, or NOA, auto lane change, ramps), 11-19% offer L2++ (full urban NOA) and two models (Arcfox using Huawei ADS and Changan using its proprietary Tianji system) offer L3 (eyes-off, legal responsibility on car) on specifically approved expressways. Driverless L4 robotaxis are being tested in various cities.

We all know how this Battle Royale ends. China’s EV companies will slaughter each other with technological brilliance and savage price wars. The shakeout is already happening.

According to the Wall Street Journal, there were 487 Chinese EV makers in 2018 at the height of the gold rush. Most were not serious players and were easily eliminated. Today, there are approximately 40 battle-hardened warriors producing mainstream volumes. That is probably 30 too many.

Before these 30 are killed off, many are taking the slaughter overseas. China exported 7.1 million vehicles in 2025 (versus Japan’s 4.4m and Germany’s 3.2m), up from 1 million in 2020. In addition, Chinese car companies produced 900,000 vehicles in overseas factories, up from 190,000 in 2020. China’s 2026 car exports will likely approach 10 million units, with an additional 1.7 million units produced in overseas factories.

Chinese companies develop new models 2-3x faster than American, Japanese and European car companies. This includes Tesla, whose threadbare and outdated line-up has caused the company to skip China’s auto show circuit in recent years. China’s deep supplier ecosystem also gives Chinese manufacturers a 20-30% cost advantage.

On top of speed and cost, China’s EVs are just better. They have moved the needle and nothing from the rest of the world quite measures up – including Tesla. CEOs from Ford, Toyota and Honda have declared the threat posed by China’s EV makers to be existential. YouTube is filled with embarrassing head-to-head comparisons between new Chinese EVs and their outclassed, twice-as-expensive German counterparts. 

It is unclear what should be done. It is unclear what can be done. At its core, this is a human capital story. China is graduating ~2.5x as many engineers as the US, EU and Japan combined. China’s engineering workforce will at least double by 2050, while those of the US, EU and Japan will remain largely unchanged. Jobs at BYD, Geely, NIO and Xiaomi are prestigious and highly sought after by graduates of China’s top universities. Ford and GM… not so much. China’s advantages will only increase.

Some economies are just not meant to make cars, for whatever reason. The US has proven this for over 60 years, with its auto industry on life support from the chicken tax to the Chrysler bailout to “voluntary” export restrictions imposed on Japan to the GM and Chrysler (again) bailout to carbon credits for Tesla to the 100% tariff on Chinese cars.

Granted, China’s EV industry has also received generous government subsidies. The difference is that China’s EV companies have delivered fabulous products at continuously falling prices while American car companies sell the same old garbage at ever-increasing prices, with shareholders getting buybacks and generous dividends.

Under classical economics, God rest David Ricardo’s soul, there is no problem with any of this. While the US may be outclassed in cars, it has pockets of excellence in AI, commercial aviation, space launch and pharmaceuticals. The EU and Japan have machine tools, EUV lithography, industrial robots and precision parts. Trade makes everyone better off.

Unfortunately, this is not the world we live in. Even more unfortunately, the protectionists are focusing on the wrong thing. Protectionist industrial policy worked in China (and Japan and Korea) because it was ultimately based on upgrading human capital.

Industries can be nurtured into global competitiveness if the workforce talent exists. Protectionist policies without investing in human capital are counterproductive. It keeps zombie industries just alive enough to continually drain resources.

The West must pick its battles and fight them wisely. Maybe America, Europe and Japan are just not meant to make cars. Maybe the industrial scale of an auto industry is crucial for national security. Whatever the case, keeping an obsolete industry on life support without addressing the root cause of the problem is wasteful and counterproductive.

Without a surge in America’s engineering workforce, Ford, GM and what’s left of Chrysler will hobble along in a protected Galapagos market, selling gaudy, obsolete pick-up trucks at nosebleed prices. The car affordability crisis will continue with no decent offerings under $30,000.

Americans waiting for America to be great again will wonder why they cannot have nice things as they swipe TikTok videos of 500-horsepower all-wheel-drive Chinese EVs bedecked with touchscreens, refrigerators, air suspensions and NOA self-driving for $30,000 (Onvo L90, Lynk 10 EM-P, Voyah FREE, Starway Ex7).