The Global Electric Vehicle (EV) Industry Price War: Implications for Managerial Decision-Making

Abstract

This paper provides an in-depth analysis of the price war dominated by Tesla and BYD in the global electric vehicle (EV) industry between 2023 and 2025, along with its managerial implications. The study reveals that as market competition transitions from the initial growth phase to a zero-sum stage, the stimulative effect of price leverage on Total Revenue (TR) has diminished, primarily driven by structural shifts in the Price Elasticity of Demand (PED). Applying game theory models, the analysis demonstrates that automakers have fallen into a classic "Prisoner’s Dilemma" under conditions of incomplete information. This has resulted in a widespread structural collapse of industry profit margins; notably, Tesla’s net profit for the third quarter of 2025 fell to $2.95 billion, representing a significant year-on-year decline of 40.5%. A comparative analysis indicates a stark divergence in financial resilience between the two leading firms: while Tesla’s gross margin retracted to approximately 15.4% due to frequent price adjustments, BYD maintained a robust automotive gross margin of 20% in the first half of 2025, attributed to its profound Vertical Integration and Economies of Scale. Furthermore, the study highlights that frequent price volatility has not only eroded brand equity but also triggered a "wait-and-see effect" among consumers, causing the short-term demand curve to become increasingly inelastic. The paper concludes that the competitive logic of the EV industry is transitioning from "hardware-based pricing" to "value reconstruction." Strategic managers should transcend homogeneous price competition and establish a differentiated moat through non-price competition strategies, including Software-Defined Vehicles (SDV), cost optimization via vertical supply chain integration, and the implementation of brand residual value protection systems, thereby facilitating a strategic leap from scale-driven expansion to efficiency-driven growth.