Price War, Stalled?

The 2026 Chinese New Year brought an unexpected quiet to many new energy vehicle (NEV) showrooms scattered across shopping malls and city exhibition halls.

During the holiday, Gasgoo visited numerous Shanghai outlets for mainstream NEV brands. The impression was consistent and clear: foot traffic was thin, and sales advisors seemed unusually relaxed.

This isn't just a seasonal lull. It reflects a deeper shift: after years of breakneck growth and a brutal price war, the industry has entered a new phase of competition. Beneath the surface calm, the battleground is subtly moving away from blatant cash discounts and toward a more complex, covert war over financing schemes.

This shift signals a stage of market saturation and suggests the industry is wading into deeper waters where success depends on operational strength and the lifetime value of the customer.

Image Credit: Gasgoo

A New Normal for the Market?

Inside several NEV experience centers in prime shopping districts, holiday decorations were up, but browsers were scarce. The scene stood in stark contrast to previous years, when families would flock to showrooms even on the first day of the Chinese New Year. One sales consultant offered a representative explanation: "Information is just too transparent now. Prices and policies are all online, so consumers prefer doing their research digitally before booking a targeted test drive."

The shift reflects how NEV ownership has evolved from a novelty into a mainstream commodity. Decision-making has become more rational and efficient, with impulse buying dropping sharply.

A deeper cause lies in the fundamental structural change of Shanghai's market, a city with relatively high NEV adoption. Analysts previously predicted Shanghai's NEV penetration rate would hit 60% to 70% by 2025—meaning two out of every three new cars sold would be electric. With such a high baseline, the room for pure incremental growth is shrinking rapidly.

In terms of sales policy, the 2026 Chinese New Year lacked the aggressive "limited-time" and "special-offer" firepower of previous years. Whether at Xiaomi Auto, Li Auto, or ZEEKR, the in-store promotions were largely standard policies announced months ago. Tesla sales staff went further, directing customers to the website for the latest financing plans and confirming there were no extra holiday perks at the showroom.

This policy "calm" stems from a convergence of factors. First is the exhaustion and rationality following a normalized price war; years of combat have squeezed profit margins in the domestic market to razor-thin levels. Data presented at a recent industry salon by the Gasgoo Automotive Research Institute showed that while industry revenue grew 8.1% in the first 11 months of 2025, the profit margin stood at just 4.4%. Experts at the event offered a bleak forecast, predicting margins will slide further—potentially falling below 3% within the next three to five years. Against this backdrop, relying solely on price cuts offers diminishing returns while eroding brand value and long-term viability.

Second is the structural shift in demand. Following explosive growth, NEV penetration in top-tier cities has peaked, and the market is transitioning from expansion to replacement. The proportion of first-time buyers is falling, replaced by those adding a second car or upgrading. These consumers are more rational and less price-sensitive, but they demand higher quality, service, and overall value—making simple price cuts less effective.

Finally, from a corporate perspective, rather than casting a wide net with uncertain returns during the holidays, resources are better focused on precise user operations and promoting new products and technologies. The 2026 holiday chill, therefore, shouldn't be read as a depression but as a rational market norm emerging after intense competition. It signals that the era of sales spikes driven by single promotions is over. Automakers must now learn to thrive in a replacement market, maintaining share by boosting brand loyalty and maximizing customer lifetime value.

The Silent War: Elevating Competition via Finance

While direct cash rebates seem to be fading, a fierce, smokeless war is raging over financing schemes—a notable new dynamic observed during this market visit.

The financial products on offer are no longer simple "low down payment" or "zero interest" deals; they are becoming far more refined and differentiated.

Xiaomi Auto's current strategy is representative. At a Xiaomi store, Gasgoo learned that for the YU7 model, the company offers a "seven-year ultra-low interest" plan with a down payment as low as 49,900 yuan and monthly payments starting at just 2,593 yuan. Simultaneously, it provides a "three-year zero-interest" option to cater to customers with different cash flow needs.

This combo approach targets the psychological trade-off between low monthly payments and total interest costs. The ultra-long term reduces monthly pressure, appealing to younger buyers with steady income but limited savings, or those who prefer to invest their capital elsewhere. The three-year zero-interest plan, meanwhile, locks in the benefit of zero total interest cost, attracting those with ample funds who prioritize overall savings.

Notably, Xiaomi is also promoting a 1,000-yuan deposit for the new SU7, using online-offline integration to steer showroom traffic toward a model not yet launched. This tactic—blending financial promotions with new product buzz—highlights Xiaomi's sophisticated approach to user operations.

Li Auto’s financial strategy also embraces "long-termism." Alongside a standard "seven-year low monthly payment" option across its lineup, it launched a more aggressive exclusive plan for the MEGA and i8: "interest-free for the first three years, with monthly payments as low as 2,857 yuan."

By front-loading the interest-free benefits, this design maximizes the initial sense of value while the low monthly payments lower the barrier to ownership. It clearly shows that when product differentiation alone isn't enough to move the needle, financial tools can act as a powerful lever to balance supply and demand and boost specific models. For Li Auto, the MEGA and i8 are critical pieces of its premium and pure-electric strategy; their performance directly impacts brand image and future product planning. Stronger financial support serves as both a short-term remedy and a way to buy time and space for long-term goals.

This shadow war over financing signifies far more than traditional discounting. It marks a shift in competitive focus from the one-off transaction of "how to sell a car" to the full-cycle service of "how to help users own and use a car." Traditional price wars test cost control and the ability to absorb short-term losses—often a zero-sum game. The battle over financing, however, tests a company's overall capabilities in capital operations, risk control, user data analytics, and pricing strategy.

A well-crafted financial plan achieves multiple goals: it lowers the barrier to entry, converting potential buyers into owners—a crucial lever given the current macroeconomic climate where consumers are cautious about future income. Low down payments and monthly installments can significantly ease payment pressure. Furthermore, differentiated financial policies allow companies to steer demand precisely; Li Auto's exclusive offers for the MEGA and i8, for instance, are a targeted tool for clearing inventory and boosting confidence. Additionally, long-term financial relationships foster a more durable connection between automakers and users. Over a five-to-seven-year loan term, customers maintain continuous contact with the brand, the auto finance company, and the bank. This creates natural channels for value-added services like insurance, maintenance, used-car trade-ins, and in-car ecosystem services. Retaining a customer for seven years can generate far more long-term value than a single sale's profit. In this sense, the competition over financing is a pivotal step in the transformation from manufacturer to user-service operator.

Industry Reshaping Driven by Financial Innovation

The "still waters run deep" atmosphere of the Shanghai market during the 2026 Chinese New Year is no isolated incident. It is an inevitable reflection of the current stage of China's NEV industry, revealing deep evolutionary logic and providing clear clues for future trends. The rise of this financial war is not merely a shift in short-term promotion tactics; it will profoundly reshape the competitive landscape, business models, and the industrial ecosystem.

The NEV industry is bidding farewell to an era of unrestrained growth, where single-product superiority and brutal price wars secured quick market share. It is entering a phase of intensive cultivation that tests systematic operational capabilities.

As core powertrain technologies converge and intelligent features become standard, the room for product differentiation shrinks. What determines whether a brand can stand out in this red ocean is its ability to build a comprehensive value system encompassing product, pricing, channels, service, finance, and user operations.

As the bridge between product and user, financing is becoming increasingly critical. The brand that offers the most flexible, considerate, and lifecycle-aligned financial products will secure a stronger position in the consumer's mind. Consider the future: could financing plans resemble mobile phone contracts? Could car loans, insurance, maintenance, charging, and even roadside assistance be bundled into a single service package for a fixed fee? In such a model, the vehicle becomes a true service carrier, and the automaker's profit model shifts naturally from sales margins to subscription revenue. If this vision materializes, it will fundamentally alter the business logic of the auto industry.

Of course, the rise of this financial war poses new challenges for automakers in terms of resource integration.

Designing a competitive financial package is far more complex than simply negotiating a low interest rate with a bank. It requires the product team to accurately forecast residual values over the coming years (as residuals directly impact loan risk), the finance department to clearly calculate long-term capital costs and risks, the marketing team to deeply understand consumer psychology and repayment capacity across different groups, and the legal and risk control teams to be fully prepared for compliance and potential bad debts.

Behind this lies a contest of internal corporate strength. Automakers with robust proprietary financial systems (such as captive finance companies), close ties to banks, and powerful data analytics and risk control models will seize the early advantage in this new race. It tests the ability to construct long-term profitability models. Some companies have already begun piloting insurance products based on driving behavior; in the future, this dynamic pricing model could extend to loan interest rates, achieving true "one-person-one-price" differentiation.

Furthermore, this new competitive trend may accelerate industry differentiation and reshuffling. Top brands, armed with stronger appeal, steadier cash flows, and mature financial networks, can launch more attractive and innovative financing plans to steadily expand market share. Conversely, brands with limited sales, weak pricing power, and tight cash flows will find it increasingly difficult to offer competitive terms. They may be forced into partnerships with costlier external institutions or riskier financial products, further exacerbating their operational difficulties.

In the long run, the barrier to entry in financial competition could become a significant force in eliminating backward capacity and optimizing the market structure.

Looking ahead, the "financial war" observed in Shanghai during the 2026 Chinese New Year is likely just a prelude to broader changes. As data accumulates and AI technology advances, future auto financing schemes are poised to become highly personalized and dynamic.

This will also have profound implications for the used car market. When new cars are routinely financed with seven-year loans, the frequency and probability of vehicles entering the secondary market during the loan term will shift. How will transactions involving outstanding loans be handled? How will vehicles with long-term debt be valued? These questions will spawn new financial products and service models for the used car sector. A healthier, more transparent used-car financing system is crucial for unblocking the entire automotive circulation cycle and improving industry efficiency.

Additionally, long-term loans will make consumers more focused on residual values. If a car is traded in early, the outstanding loan balance must be covered by the sale price; models with low resale values will effectively carry higher holding costs. This will pressure automakers to prioritize product quality and brand building to maintain high residual values.

Summary:

Beneath the quiet surface of the Shanghai NEV market during the 2026 Chinese New Year runs a warm current of profound transformation in the industry's competitive core. From frontal price skirmishes to shadowy financial battles, China's NEV sector is undergoing a metamorphosis from adolescence to maturity.

This transformation is smokeless, yet it tests the wisdom, composure, and foresight of every market participant just as severely.

For consumers, the cost structure and methods of car ownership may undergo significant changes. For the industry, it signals that true value-based competition has only just begun. The forces that will determine the future market landscape are perhaps being nurtured in today's seemingly quiet holiday showrooms and within those calculated yet considerate financial schemes.

As the smoke of the price war clears, a marathon focused on customer lifetime value has already begun. Only those enterprises that can continuously innovate and cultivate their operations throughout this long run will remain invincible in the competition to come.

The scene in Shanghai this Chinese New Year may well be the new starting line for that marathon.