The focus of competition for Chinese electric vehicles (EVs) is shifting from prices to artificial intelligence capability, as carmakers try to manage weakening demand amid tightened regulations, according to Morgan Stanley.

The push in AI would likely bring models with conditionally autonomous driving capability, or Level 3 (L3), to market, said Tim Hsiao, head of the Greater China auto and shared mobility research team at Morgan Stanley, in a recent interview with the South China Morning Post. It might even soon become the norm, advancing from the current L2 or L2+, he added.

“It will be difficult for carmakers to differentiate themselves by introducing new EVs,” Hsiao said. “To do so, they will need to upgrade their autonomous driving AI capabilities, both for driving and the in-car experience.”

Meanwhile, BYD founder and chairman Wang Chuanfu told a press conference in Shenzhen on Thursday that AI was reshaping the automotive industry, with the company launching its self-developed 4-nanometre intelligent driving chip – the first in China – supporting L3 and L4 autonomous driving.

The world’s largest EV producer vowed to invest over 100 billion yuan (US$14.8 billion) in research and development, with the aim of achieving “zero traffic accidents” through autonomous driving technology.

Chinese carmakers have faced falling sales since the EV subsidy pullback in January, while also trying to avoid a new round of price wars. Authorities in Beijing have repeatedly urged the industry to end its profit-squeezing race to the bottom.