Strong sales of smartphone vendor Xiaomi's first electric car have exacerbated a price war in the sector that is squeezing the profit margins of most players in China.

The SU7, with a driving range of 700 kilometres, has locked in more than 40,000 orders since it went on sale on March 28. Xiaomi's CEO Lei Jun admitted at the launch ceremony that the company was selling the cars at a loss based on current prices.

The three variants of the SU7 are priced at 215,900 yuan (US$29,850), 245,900 yuan and 299,900 yuan.

Do you have questions about the biggest topics and trends from around the world? Get the answers with SCMP Knowledge, our new platform of curated content with explainers, FAQs, analyses and infographics brought to you by our award-winning team.

Goldman Sachs said in a research note on April 1 that it believed the fully electric sedan "is highly competitive and demonstrates Xiaomi's capabilities of becoming a potential price leader in the market rather than a price follower."

The SU7, fitted with intelligent features such as an autonomous driving system and digital cockpit, hit the market three years after Xiaomi ventured into electric vehicles (EVs) to diversify its business.

It boasts sports-car level performance, which is powered by Xiaomi's HyperEngine electric motor that produces up to 21,000 revolutions per minute.

In December, when Lei unveiled details of the car, he expressed his ambitions of building a dream vehicle on par with Tesla for mainland Chinese consumers.

More than a dozen domestic rivals including Zeekr, a premium EV unit of Geely, Nio, a leading assembler of intelligent cars, and Aito, backed by telecommunication equipment giant Huawei, have either slashed the prices of their vehicles or offered incentives to lure buyers since the presales of SU7 began.

Zeekr priced the entry-level edition of its refreshed Zeekr 007 at 209,900 yuan, down 20,000 yuan from the previous version.

Nio, which traditionally does not lower the prices of its cars, said that drivers who replaced their petrol vehicles with its EVs would receive a "subsidy" of 10,000 yuan each from April 1.

Aito marked down the price of the M7 sport-utility vehicle's basic edition by 20,000 yuan to 229,800 yuan on April 1.

"Xiaomi's SU7 has become more than a game-changer in China's EV market because it is not only grabbing a market share from the existing carmakers, but forcing them to adjust their pricing strategies to survive the cutthroat competition," said Gao Shen, an independent analyst in Shanghai.

"Most Chinese EV makers have been struggling to stem losses after spending billions of yuan in designing and developing new models."

In February, Cui Dongshu, general ­secretary of the China Passenger Car Association, said that most carmakers were likely to continue offering discounts to retain market share, which could reshape the domestic market.

On the mainland, the world's largest EV market where six out of every 10 new electric cars worldwide are sold, only a few players such as BYD and Li Auto, a premium electric car builder, have posted profits.

Shenzhen-based BYD kicked off a discount war starting on February 18, cutting the prices of nearly all of its cars by 5 to 20 per cent as sales in the world's largest EV market showed signs of slowing.

Fitch Ratings warned last November that sales growth of EVs in China could slow to 20 per cent this year from 37 per cent in 2023 because of ­economic un­­certainties and intensifying competition.

According to calculations by China Business News in September, at least 15 start-ups with a combined annual production capacity of 10 million units have either collapsed or been driven to the verge of insolvency as bigger players took the lion's share of the market. That exceeds the 8.9 million electric vehicle sales on the mainland in 2023.

The failed players include WM Motor, once viewed as a potential rival to Tesla, and luxury EV producer Human Horizons which rose to global prominence last summer when it agreed to establish a US$5.6 billion venture with Saudi Arabia's investment ministry to develop and manufacture battery-powered cars in the Gulf country.

"Fiercer competition will force more carmakers to fold their businesses," said Chen Jinzhu, CEO of consultancy Shanghai Mingliang Auto Service. "Time is against some small companies which are unable to convince consumers of their products' performance and quality."

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2024 South China Morning Post Publishers Ltd. All rights reserved.

Copyright (c) 2024. South China Morning Post Publishers Ltd. All rights reserved.