Sixteen carmakers committed at Shanghai Auto Forum to fend off the ongoing price war in China. Among the underwriters was also the brand that kickstarted the spiral: Tesla. The agreement was an intention of good faith, not legally binding.

Two days later, the deal was withdrawn, without any publicity, by the Chinese Association of Automotive Manufacturers (CAAM). Apparently, “it was not compatible with the principles of China’s Anti-Monopoly Law.”

Tesla’s global ramp-up phase and the arrival of stiff competition in China saw the company considerably drop its prices at the end of last year. First in the Asian region and soon after in markets worldwide.

The carmakers from the West, reliant on higher price positions to pay off the considerable investment required by electrification, struggled to follow Tesla’s daunting move. Still, a cascading effect emerged among local carmakers in China to lure in more customers and gain market share.

The most important Chinese carmakers settled a gentleman’s agreement with Tesla to stabilize the price manipulation. The deal was concluded at Shanghai Auto Forum and prepared by the CAAM.

No false marketing

This could be interpreted as price fixing – an illegal maneuver in Europe – but the participants keep the agreement self-regulatory and non-binding. There are no exact figures involved, either. The document stipulates that the first goal is “to maintain a fair competition order, and not to disrupt the competition order.” Even these careful wordings were insufficient to pass under the Anti-Monopoly Law.

Furthermore, the carmakers agreed “not to mislead consumers or conduct false marketing to increase customer acquisition.” Lastly, they vowed to put quality above quantity and to work together to stabilize economic growth. How this translates into the real-world pricing of catalogs remains unclear. It seems the agreement is a settlement to help wave off most of the built-up steam.

Bearing fruit

The brands having signed the agreement are China FAW, Dongfeng Motor, SAIC Motor, Chang’an Automobile, BAIC, GAC, China National Heavy Duty Truck, Chery, JAC, Geely, Great Wall Motor, BYD, Nio, Li Auto, XPeng Motors, and Tesla. Some Chinese brands like Nio and Xpeng don’t return a net profit.

Tesla’s pricing adjustments did bear fruit. The company maintained its position in China and posted record sales during the year’s first two quarters. Moreover, as every carmaker desperately seeks to decrease the purchase price of its EVs, the American carmaker, making enough money on every EV sold, was assertively showing the way forward.

The stock exchange didn’t applaud the new agreement. It sent Tesla shares 5% lower on Thursday. Tesla signing the deal might point to the fact that it wants to stop the bleeding of its decreasing margins – although these remain unusually high for the sector.