Shares in EV (electric vehicle) maker Tesla (TSLA:NASDAQ) slumped last week on the announcement the company would cut prices again in China, the number one market for its products.

Just last month, the US firm and 15 of its Chinese rivals signed an agreement promising to compete ‘fairly’ with each other and refrain from what the government called ‘abnormal’ pricing.

Yet two days later the commitment was withdrawn by the Chinese auto makers’ association claiming it violated anti-monopoly rules, so the race to the bottom in pricing has re-started.

China’s EV market is forecast by local firm Daxue Consulting to be worth close to $300 billion this year and is expected to grow by around 6.4% per year by value through to 2028 led by BEVs (battery-electric vehicles), such as those made by Tesla, which currently make up two thirds of the market by value.

Elon Musk, Tesla’s mercurial chief executive, warned investors last month there could be more price cuts claiming ‘it does make sense to sacrifice margins’ in order to sell more vehicles and protect the firm’s market share.

The firm described the second quarter of this year as ‘a record on many levels with our best-ever production and deliveries and revenue approaching $25 billion’ and enthused over the prospects for its Autopilot function and new product development.

However, it glossed over the fact its group operating margin had sunk below 10% for the first time since the beginning of 2021 and vehicle sales had lost momentum, registering $21.2 billion or less than in the final quarter of 2022.

While investors understand that China is a key market for Tesla, the prospect of sacrificing margins for the sake of shifting more vehicles doesn’t sit easily.

There are more than 90 Chinese EV makers and more than 300 models on sale, so it’s no surprise that established brands like BYD (BYD:NYSE), Wuling (0305:HKG), Chery, Changan and GAC, together with new arrivals like Nio (NIO:NYSE) and Xpeng (XPEV:NYSE), still control more than 80% of the market.

Now there is a new kid on the block in the shape of Vietnam’s VinFast (VFS:NASDAQ), which recently merged with a SPAC (special purpose acquisition company) and listed on the US Nasdaq exchange and despite being loss-making is worth more than Ford (F:NYSE) or General Motors (GM:NYSE) in terms of market cap.

Unlike other new arrivals like Lordstown and Faraday (FFIE:NASDAQ), which have struggled, VinFast has been making cars for five years and has around 20,000 vehicles on the road.

‘We’ve got every step from product development to supply chain’, the firm’s says the chief executive, claiming VinFast would be profitable ‘in the next couple of years’.

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