BEIJING – A cut-throat price war has erupted in the world’s largest car market.

Within a week in March, Volkswagen’s Chinese joint venture slashed prices on its ID.3 electric cars by 18 per cent.

Changan Automobile, one of China’s state-owned car manufacturers, offered US$3,000 (S$4,000) cash rebates, free charging credits and other incentives for its electric vehicles.

BYD, the country’s biggest electrich vehicle (EV) maker, unveiled a second round of markdowns in a month for some of its older models.

Amid slumping car sales, car brands are going to extremes to stay competitive, offering dealership giveaways and deep discounts.

More than 40 carmakers have discounted electric and gas-powered vehicles in China this year. The discounts have amounted to several hundred dollars for cheaper models, and tens of thousands of dollars for higher-end offerings.

“The severity of this cycle of price cuts is something that I’ve never seen,” said Mr Tu Le, managing director at the Beijing consultancy Sino Auto Insights, who has worked in the automotive industry in China and the United States for 25 years.

The price competition has unsettled what was a pillar of strength in the past few years, even as strict anti-pandemic measures shook China’s economy and undermined efforts by the ruling Chinese Communist Party to instil confidence.

China’s car sales fell 13 per cent in the first three months of 2023. Sales of traditional cars plunged, while growth in EVs slowed, according to the China Passenger Car Association.

China’s EV market has grown rapidly since 2020 – doubling in sales in 2022 – propped up partly by government subsidies.

When that programme expired in December 2022 after 13 years, the competition intensified to attract buyers in an already crowded segment of the market.

At the same time, traditional carmakers are scrambling to unload inventory of older cars before tougher national emissions standards starting in July make it difficult to sell diesel- and gas-powered vehicles.

An already jittery market started to spiral in January when Tesla, the US company that makes electric vehicles in Shanghai, lowered prices in China for the second time in three months. Other manufacturers felt pressure to do the same.

This month, Mr Wang Chuanfu, chairman and chief executive of BYD, proposed that the government extend tax exemptions, which reduce the cost of buying EVs, to 2025, instead of allowing them to expire this year.

And China’s Auto Dealers Chamber of Commerce published an article in March calling for a six-month delay in the new emissions standards.

The price cuts are not limited to China. Tesla has also lowered prices in the US and Europe, and its competitors have followed suit.

But the intensity of competition reflects the reality that China is not only the biggest market for EVs, but also the most competitive.

Established domestic carmakers and local start-ups, supported by Beijing’s policies encouraging growth of so-called new energy vehicles, flooded the sector, enticed by a once-in-a-generation opportunity to upend the balance of power in the car industry.

By one measure, there are around 300 domestic EV manufacturers across China.

Didi, China’s leading ride-hailing service, has developed an electric car with BYD exclusively for its drivers. Xiaomi, a maker of smartphones, has said that it plans to debut an electric car in 2024.

Even Evergrande, the beleaguered property developer, was building EVs, although those plans may be in jeopardy because of its debt woes.

China is the leading market for electric cars, and more were sold there in 2022 than in the rest of the world. Foreign carmakers see an urgent need to gain a foothold in China to develop the know-how and manufacturing scale necessary to compete globally.

Mr Cui Dongshu, secretary-general of the China Passenger Car Association, said that the price war “will definitely continue” because of the importance of producing EVs in large quantities.

“In the end, companies with small sales or poor technology will be easily eliminated,” Mr Cui said.

Car companies and dealerships are now pulling out all the stops for customers. Some dealers are offering free vacations or bottles of perfume in exchange for test drives, while some eager sales teams are stalking charging stations in hopes of luring drivers away from the competition.

In March, a promotional poster from a Toyota dealer in the southern city of Shenzhen generated buzz online. It advertised a free gas-powered sedan with the purchase of a bZ4X, the company’s electric sport utility vehicle.

A woman who answered the phone at the dealership said that there was currently no such deal.

Mr Kevin Yang, 29, said tat he visited a Volkswagen dealer in Chengdu in March to look at its EVs. He was struck by a sense of desperation among the salesmen.

One salesman stayed well past the end of his workday to plead with Mr Yang to take a test drive. After Mr Yang agreed to take the car for a spin, he started receiving daily phone calls from the salesman with offers of lower prices if he was willing to return to the dealership.

“The rat race is really intense now,” Mr Yang said. NYTIMES