‘China's car market has lost all reason' – the country's largest western carmaker refuses to compete in Tesla and BYD's EV price war

Yahoo

15-07-2025

Once China's dominant carmaker before being overtaken by fast-growing EV leader BYD, Volkswagen is now in a rebuilding year. VW Group China boss Ralf Brandstätter says he's willing to sacrifice market share during the price war to protect the equity of his company's car brands. Relief is due to come next year with a new range of affordably priced EVs built off the dedicated China-only 'CMP' platform.
China's brutal EV price war waged between industry giant BYD, Tesla and now Xiaomi is increasingly squeezing the country's largest western carmaker out of the market.
According to Volkswagen Group, there are 130 brands are competing for a share of the EV and plug-in hybrid sales. The result of such an oversaturated supply is that almost no one is able to earn a positive return.
'That means there's no money left over to invest in the future,' VW exec Ralf Brandstätter told German business daily Handelsblatt in an interview published Tuesday. 'China's car market has lost all reason.'
Volkswagen is in the starting phase of a new EV product cycle it hopes will increase its total China sales by a third in the mid-term, allowing it to fully utilize its installed local capacity of 4 million cars annually. Leading that is Brandstätter, who is ultimately responsible for a portfolio of group brands including VW and Audi, as well as its China-only entry brand Jetta.
The group may play a minor role in the United States, but it remains the world's second largest carmaker after Toyota. That's mainly thanks to its prescient bet on China, a market it dominated for nearly 40 years after becoming the first western car brand to successfully enter the market, in 1985.
But ever since Beijing attempted to reel in an overheated real estate sector—in the process collapsing its property bubble—VW has steadily lost volume.
In October 2022, several months after developer Evergrande defaulted on $300 billion worth of debt, Tesla first slashed vehicle prices in China. Its decision the next quarter to double down on this strategy with further rebates off the hood of Tesla cars helped cement the EV price war that still rages today.
As a result, VW Group was eclipsed by fast-growing industry leader to BYD, which sold 4.21 million cars in China in 2024 to Volkswagen's 2.93 million last year. In 2019 just prior to the 'Three Red Lines' housing market reforms, VW's total China sales had hit a record of 4.23 million cars.
While the prevailing prices for EVs in China are low, these aren't cheaply built econoboxes—China's market features the single greatest array of technologically advanced vehicles found anywhere on Earth.
Even brands previously known for consumer electronics, such as smartphone manufacturer Xiaomi, have launched their own high-tech EVs for a relative pittance. Despite the $30,000 price tag, its sporty SU7 sedan that debuted last year looked and performed so much like a European grand tourer that Xiaomi needed to defend itself from suspicions imitation took flattery to a whole other level.
Given the brutal conditions in the market, VW has declared 2025 to be a year of transition. Only starting next year on does it expect to have attractive products that do not need to compete with the likes of BYD and Xiaomi on price alone.
These begin with volume models built on the China-specific Compact Main Platform ('CMP'), potentially including a model sold under its Jetta brand for the equivalent of about €15,000 (about $17,500). The new cars continue in 2027 with more upscale models underpinned by the China Scalable Platform ('CSP').
Until then it won't chase after sales with ever increasing incentives just to move metal gathering dust on dealer lots.
'In such an unhealthy market environment, our share is not important,' Brandstätter claimed. 'Those only capable of selling their cars through rebates are damaging their brand.'
Volkswagen serves as a litmus test of a legacy carmaker's desire to adapt and change with the times as demand shifts from gas-powered cars relying on mechanical innards like pistons and camshafts to EVs defined by their high-tech software features.
Whereas 97% of GM's consolidated operating profit were earned in North America last year, VW continues to stake its claim to a leadership role across the entire global auto industry. This includes remaining relevant in the latest technological trends like autonomous ride hailing, where VW still harbors ambitions even after legacy rivals Ford and GM buried theirs.
This story was originally featured on Fortune.com