China’s Electric Vehicle (EV) Sector and Involution

Involution and Price Wars

• Involution refers to rivals in certain sectors engaging in price wars to capture market share and clear out oversupply.

• These price wars can lead to low retail prices, pushing firms into losses.

• This trend has been most evident in China’s EV sector, with President Xi Jinping prescribing corrective measures.

Involution Origins

• The term “involution” originates from the Latin phrase involū tiō n-em, meaning ‘to turn inwards.’

• The term was popularised by American anthropologist Clifford Geertz in the 1960s.

Impact of US, EU, Turkiye, and Mexico Tariffs

• The US has imposed 100% tariffs on Chinese EVs, effectively a trade embargo on Chinese EVs.

• The EU has imposed “countervailing duties” on Chinese EVs to counter China’s subsidies.

• Turkey added a 40% extra tariff on Chinese vehicles in 2024, and Mexico is moving toward a 50% tariff.

Increased Competition and Price Wars

• Chinese Original Equipment Manufacturers (OEMs) intensified competition at home, fuelling price wars.

• Industry leaders have called this an “involution.”

Government Measures

• The Chinese Ministry of Industry and Information Technology (MIIT) assured to rein in involution in the EV sector.

• On July 24, Beijing released a draft overhaul of the pricing law to curb below-cost selling and algorithmic pricing abuses.

Electric Vehicle Involution is important topic for Civil service exam (WBCS).

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