A price war may be looming among Chinese EV makers and will likely reduce profits, despite the strong sales in the country, a UBS Securities analyst warned recently.

Paul Gong, head of China auto research at UBS Securities, told the press on January 13 that China’s electric vehicle (EV) sales soared in 2021 and local automakers have shown strong competitiveness against overseas counterparts. But there might be greater supply than demand in the Chinese EV market this year, since consumption could be reduced by slowing economic growth amid the recharged pandemic, according to a Technode report.

Gong is quoted as saying that an easing chip shortage may also help EV makers return to normal auto production this year. He warned that an intense “price war” would push the prospect of profitability further away for automakers in the short term.

Still, the rise of domestic EV makers will be “the way of the future” in China, as local players have generally “achieved greater progress” in the development of products and technology than foreign auto majors, according to Gong.

The Technode reported UBS’s cautious optimism in its outlook for the industry over the long term. Compared to its 2021 projection of 3 million vehicles, China’s EV sales will increase by 35% to more than 4 million vehicles this year. Sales could grow to 7.05 million units in 2025, according to UBS.

Sales of new energy vehicles, which include all-electrics and plug-in hybrids, increased by nearly 160% year-over-year to 3.52 million units in 2021, according to a statement published by China’s Ministry of Industry and Information Technology.

The number of passenger electric vehicles sold in China surged 169% year on year to nearly 2.99 million units in 2021, according to figures published by the China Passenger Car Association (CPCA).