(Bloomberg) -- China’s electric vehicle makers are on track to hit ambitious annual sales targets as they emerge as the victors from an intense price war that’s seriously wounded legacy foreign brands in the world’s biggest auto market.

Analysis by Hyperdrive points to an improved picture for the major Chinese EV players at the end of the third quarter compared to the same time last year, with robust deliveries likely having eased the financial pressure from needing a new round of discounts. And things could get even better with analysts forecasting a sales bonanza in the final three months of 2024.

EV and hybrid vehicle sales more broadly are surging — along with the companies’ stock prices — fueled by expanded national and local subsidies to encourage consumers to trade-in older cars. The policy contributed to Tesla Inc.’s best-ever quarter while EV and hybrids reached around 53% of total new monthly car sales in September.

Chinese EV sales are set for an even bigger lift on a reported directive earlier this week instructing central government agencies to increase purchases of so-called new energy vehicles.

“Industry demand has been better than expected since the third quarter following China’s beefed-up subsidies but many automakers still need a major push in the fourth quarter to hit their annual sales targets,” Bloomberg Intelligence analyst Joanna Chen said. “The first nine months usually contribute 70% of annual car sales and automakers below that threshold are under greater pressure to step up discounts in the quarter.”

The likes of Zhejiang Leapmotor Technology Co., Nio Inc. and Zeekr Intelligent Technology Holding Ltd. are enjoying banner years off the back of transformational deals, going public, or brand expansion.

Top sellers BYD Co. and Geely Automotive Holdings Ltd. are also on track to meet their increased targets. The pair are targeting 4 million and 2 million in annual sales respectively. BYD’s moves on pricing earlier this year rocked the market into months of discounting.

“I do not see a need to launch another price war,” Yale Zhang, managing director at Shanghai-based consultancy AutoForesight said. “Most of them are in pretty good shape. The majority of these NEVs or carmakers will reach their volumes.”

It is also possible foreign manufacturers will keep steep discounts to maintain the base volume sales they’re used to for gasoline-powered cars, Zhang added.

But one major player that could unsettle the buoyant market is Tesla. Elon Musk’s company will have to ship a record number of EVs in the quarter — at least 515,000 — to deliver on its guidance for “slight growth” in annual sales. This will likely require Tesla to rely heavily on China, a market large enough to pick up the slack needed to reach its target.

This means Tesla and other EV brands could still cut prices again during the industry’s peak sales season, Citibank’s Jeff Chung wrote in a note earlier this month. 

Still, the fourth quarter is shaping up for a surge in spending on autos with brands set to launch several dozen new EV models while the year-end deadline to use the trade-in subsidy could pull forward sales from the first three months of next year, said Yuqian Ding of HSBC Qianhai Securities Ltd. in her latest report on the China auto market.

Data tracked by Ding points to a likely divergence in sales strategies, with EVs requiring fewer discounts while gasoline-powered cars maintain average discounts of around 22% compared to the same time last year, the highest level in at least three years.

Other prime candidates likely to dangle price cuts include European brands like Volkswagen AG, Mercedes-Benz Group AG and BMW AG, which suffered one of their worst third quarters in China in years.

Data from AutoForesight points to a risk of a price war in the premium segment among gas carmakers. The market could be about to see the end of 15 consecutive years of output growth in the price point occupied by traditional luxury brands such as Mercedes, Audi and BMW. AutoForesight data up to September point to a 4% decline in production compared to last year.

--With assistance from Charlotte Yang and Chunying Zhang.

©2024 Bloomberg L.P.