The price war that swept through China’s electric vehicle industry has paid stock prices and has prompted Beijing’s unusual level of intervention. The swing may just be the beginning.
All efforts to prevent market leaders from cutting prices Bit Analysts say that from turning into a vicious spiral, the combination of weaker demand and extreme capacity will be divided into the most powerful brands’ profits and force poorer competitors to fold. Even after the number of electric vehicle manufacturers began to shrink for the first time last year, the industry is still using half of its production capacity.
Chinese authorities are trying to minimize the impact, for the “rat race” and Summon the mind of major brands I’m going to Beijing last week. However, previous intervention attempts have been hardly successful. At least in the short term, the automaker with few bets will be unscathed: Byd is arguably the biggest winner in industry consolidation, losing $21.5 billion in its share price since peaking in late May.
“What you see in China is disturbing because of the lack of demand and extreme price cuts.”John Murphya senior automotive analyst Bank of America Murphy said the company will eventually have a “massive merger” to absorb excess capacity.
For automakers, ruthless discounts erode profit margins, undermine brand value, and even force well-capitalized companies into unsustainable financial situations. Low-priced and low-quality products may seriously damage the international reputation of “Made in China” cars, and the People’s Daily is a channel controlled by the Communist Party. Like models from Byd to Geely, Zeekr and Xpeng began to get acclaim on the world stage.
Price drops may seem beneficial for consumers, but they mask deeper risks. Unpredictable pricing will prevent long-term trust – people have complained about China’s social media and wondered why it might be cheaper next week when buying cars – although there is a chance that automakers, as they cut the cost of abandonment, could reduce investment in quality, safety and after-sales service.
The auto chief executive was told last week that they had to “self-regulate” and should not sell cars below cost or offer unreasonable price cuts, according to people familiar with the matter. question Zero rehydration Cars have also emerged – Dealers sell vehicles that are not far away on the second-hand market, widely seen as a way for automakers to artificially expand sales and clear inventory.
Chinese automakers are more proactive in discounting than their foreign counterparts.
Murphy said American automakers should leave. “Tesla It may be necessary to compete with these companies there and understand what is going on, but there are a lot of risks there. ”
Others undoubtedly, Byd, the number one sales car brand in China, is the culprit.
“For everyone, the biggest players are doing this,” said Jochen Siebert, managing director of Auto Consultancy JSC Automotive. “They want to monopolize others to give up.” Bieder’s aggressive strategy raises concerns about potential dumping of automobiles, dealer management issues and the “possibility of squeeze out suppliers”, he said.
Pricing turmoil is also developing against the backdrop of major production capacity. Data compiled by Shanghai-based Gasgooo Automotive Research Institute shows that the average production utilization rate in China’s automotive industry is only 49.5%.
Meanwhile, Alixpartners’ April report highlights the fierce competition that new energy vehicle manufacturers or companies that make pure battery and plug-in hybrids are beginning to emerge. In 2024, the market was merged for the first time in the NEV teen brand, with 16 exits and 13 launches.
“Although China’s automobile market is large, it is getting slower and slower. Automakers must now focus on the top priority to capture more market share.” Ron Zhengsaid a partner at global consulting firm Roland Berger GmbH.
Jiyue Auto shows how quickly the situation can change. The automaker has been supporting the big names for more than a year after launching its first car for more than a year. Zhejiang Geely Holding Group Co. and Technology Giant Baidu Inc. began to shrink production and seek new funding.
This is a dilemma for all automakers, especially smaller ones. “If a leading company once you don’t follow suit, you may lose the opportunity to stay at the table,” Alixpartners consultantZhang Yichaoexplain. He added that China’s low capacity utilization “fuels fundamentally” competition and is now under greater pressure even under pressure from export uncertainty.
While efforts to find too much production media are driving more exports of Chinese brands, the international market can only provide some relief.
“The U.S. market has been completely closed and if Japan and South Korea see an invasion from Chinese automakers, they may be closed soon,” Sibert said. “Russia was the largest export market last year and it is becoming very difficult now. I no longer see Southeast Asia as an opportunity.”
The pressure to cut costs has also led analysts toSupply Chain Financing Risks.
In the second half of last year, BYD attracted a careful scrutiny on price cuts by one of its suppliers, surrounding how the auto giant uses supply chain financing to mask its inflated debt. Report on the GMT study of accounting consultingBid’s real net debtAs of the end of June 2024, its books officially used nearly 323 billion yuan (US$45 billion) in their books.
Pain also bleeds into China’s Dealders network. Distribution groups in two provincescollapseThey both have sold Bit cars since April.
Beijing’s meeting with automakers last week is not the first ceasefire. Two years ago, in mid-2023, 16 major automakers, including Tesla Inc.Signed an agreementwitnessed by the China Automobile Manufacturers Association to avoid “abnormal pricing”.
However, within a few days, CAAM removed one of the four commitments, saying the mention of pricing in the commitment was inappropriate and violated the principles involved in state antitrust laws.
The discount still hasn’t eased.
This story was originally fortune.com
