Discounts in central China have slashed the price of the Citroen C6 by more than 40 percent.

Bloomberg

A price war started by Elon Musk's Tesla has spread beyond electric vehicles to gasoline-fueled vehicles as the likes of Citroen, Mercedes-Benz and Chevrolet seek to protect market share.  

Government subsidies in Hubei province in central China, together with discounts from state-backed Dongfeng Motor Group, have slashed the prices of some cars such as the Citroen C6 more than 40 percent, with incentives of up to 90,000 yuan ($12,900) on offer.

Sales of gasoline cars have also been hit as EV demand continues to grow, spurred by price cuts from Tesla and BYD.

Sales of internal combustion engine vehicles fell 13 percent in 2022 while battery-powered car sales rose 74 percent and plug-in hybrids surged 161 percent, according to the country's Passenger Car Association.

Ron Zheng, a Shanghai-based partner at consulting firm Roland Berger, said the move by the Hubei government is obviously aimed at stimulating car sales because consumers are still cautious about spending, while the models being discounted are mainly ones that need stock urgently cleared.

"The dramatic price drop will have a huge impact on the residual value of used cars, as well as brand loyalty,"  Zheng said. "I would say the move might be a bit short-sighted."