(Yicai Global) March 14 -- The price war which has broken out in China’s fossil fuel-powered vehicle industry as manufacturers vie to offload stock before a new emission standard is introduced in July, should be over by May at the earliest and by June in the most pessimistic circumstances, according to a recent report.

The national vehicle exhaust emission standard VI-b will take effect on July 1 and with it will come the introduction of real driving emissions tests, Shenwan Hongyuan Securities said in a recent research note.

This means that in the first half, there will be pressure to offload stock and fierce price reductions will continue, it added. This will disrupt the industry’s sales volume and profit to a large degree.

De-stocking of obsolete models that don't comply with new emission rules may impact production, sales and prices, Citic Securities said. But the impact caused by the new standards will not last long, and should be much shorter than the transition to VI-a from V in 2019.

In the run-up to the previous shift, cut-price promotions boosted passenger vehicle sales by 40 percent in June 2019 from the year before to 2.1 million units, Citic Securities said. While in July that year, after the introduction of the new standard, sales slumped 17 percent and in August 18 percent.

More than 30 auto brands, including BYD, Germany’s BMW and Japan’s Honda, have slashed their prices recently, sparking intense competition. Most of these are less competitive brands, Huaxi Securities said. As of the second half of last month, the majority of heavily discounted vehicles were models no longer in production, fossil fuel-powered autos with poor sales and high-end electric cars. Sales of mainstream models remain relatively stable at present.

Another reason for the large price cuts is the nearly 30 percent penetration rate of new energy vehicles, Huaxi Securities said. Also, after the week-long Spring Festival holiday in January, demand dropped leading to higher stock levels at dealerships. The continued weak demand for gasoline-powered vehicles made by joint venture carmakers also had an impact.

Editor: Kim Taylor