What's happened
Sri Lanka reopened its car market in February after a five-year import ban, but new tariffs have sharply increased vehicle prices. BYD's strategic model adjustments have made EVs more affordable, capturing nearly 90% of local EV sales by May. Market dynamics are shifting amid complex tax policies and global trade tensions.
What's behind the headline?
The Sri Lankan car market's recent evolution highlights how complex tax regimes can create market winners and losers. BYD's ability to tailor models to skirt high tariffs demonstrates strategic agility that has paid off, capturing a dominant share of EV sales. This underscores a broader trend where manufacturers that adapt to local policies can disrupt established markets. The surge in EV adoption signals a shift in consumer preferences, driven by affordability and trust in local partners like JKCG Auto. However, the high tariffs and currency depreciation threaten to slow growth, especially as global trade tensions persist. The market's future hinges on policy stability and the ability of local firms to innovate within regulatory constraints. Overall, this case exemplifies how regulatory environments can be leveraged for market disruption, with implications for other emerging markets facing similar challenges.
What the papers say
South China Morning Post reports that BYD's strategic model adjustments have allowed it to dominate Sri Lanka's EV market, accounting for roughly 90% of EV sales by May 2025. The article emphasizes how the complex tariff system has created a landscape where flexible manufacturers like BYD thrive. Meanwhile, Ars Technica highlights the broader trend of rising new car prices in the US, driven by tariffs and supply chain issues, with average prices reaching over $51,000 in June 2025. Both sources illustrate how tariffs and trade policies are influencing vehicle prices globally, but the Sri Lankan case shows a more direct market disruption through strategic model adaptation. The Independent notes the discontinuation of the Mitsubishi Mirage, the last sub-$20,000 vehicle in the US, emphasizing how tariffs and supply chain issues are squeezing lower-end markets. While the US market faces rising prices and shrinking affordable options, Sri Lanka's market is experiencing a disruptive shift driven by strategic manufacturer responses and local partnerships. These contrasting narratives reveal how different markets respond to global trade tensions and policy changes, with Sri Lanka's market showing signs of innovation and disruption, and the US experiencing a squeeze on affordability.
How we got here
Sri Lanka imposed a ban on new car imports in 2020 to stabilize foreign reserves, which lasted nearly five years. The market reopened in February 2025, but a new tariff regime with high excise duties, VAT, and luxury taxes has driven prices up significantly. The tariffs on EVs are based on motor power and year of manufacture, incentivizing manufacturers like BYD to adapt models for lower taxes. The country's economic instability and currency depreciation initially caused vehicle prices to surge, but aggressive pricing by BYD and its local partner JKCG Auto helped lower overall market prices and increase EV adoption. The market now sees EVs as a significant segment, with BYD dominating due to flexible model offerings and strategic pricing.
Go deeper
Common question
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Why Are Car Prices Rising in Sri Lanka Now?
Sri Lanka's car market has experienced significant shifts recently, with prices soaring after the country reopened its import market in February 2025. This surge is driven by new tariffs, economic instability, and strategic responses from manufacturers like BYD. Curious about what's behind these changes? Below, we explore the key factors influencing Sri Lanka's car prices and what it means for buyers and the market alike.
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