The three-month discount war has seen prices of 50 models across a range of brands dropping by an average of 10 per cent
Goldman Sachs said in a report last week that the automotive industry’s profitability could turn negative this year
A bruising price war in China’s automotive sector is set to escalate as electric vehicle (EV) makers intensify their bid for a bigger piece of the world’s biggest automobile market, according to participants at the Auto China Show in Beijing.
Falling prices could inflict heavy losses and force a wave of closures, triggering an industry-wide consolidation that only those with manufacturing heft and deep pockets would be able to survive, they said.
“It is an irreversible trend that electric cars will entirely replace petrol vehicles,” Lu Tian, head of sales for BYD’s Dynasty series, told reporters on Thursday. BYD, the world’s largest EV maker, aims to redefine some segments to offer the best products and best prices to attract Chinese customers, Lu added.
Lu did not say whether BYD would mark down prices of its pure electric and plug-in hybrid vehicles any further, after the company initiated a discount war in February by cutting price between 5 and 20 per cent to lure customers away from petrol vehicles.
The three-month discount war has since seen prices for 50 models across a range of brands dropping by an average of 10 per cent.
Goldman Sachs said in a report last week that the automotive industry’s profitability could turn negative this year if BYD lowered its price by another 10,300 yuan (US$1,422) per vehicle.
A discount of 10,300 yuan represents 7 per cent of BYD’s average selling price for its vehicles, Goldman said. BYD mainly builds budget models priced from 100,000 yuan to 200,000 yuan.
China is the world’s largest EV market where sales account for about 60 per cent of the global total. But the industry is facing a slowdown due to a battered economy and consumers’ reluctance to spend on big-ticket items.
At present, only a few mainland EV makers – such as BYD and premium brand Li Auto – are profitable, while most companies have yet to break even.
“Overseas expansion is becoming a cushion against the falling profit margins at home,” said Jacky Chen, head of Chinese carmaker Jetour’s international business. He added that price competition among mainland EV makers would spread to overseas markets, particularly in those countries where sales are still rising.
Cui Dongshu, general secretary of the China Passenger Car Association, said in February that most mainland carmakers were likely to continue offering discounts to retain market share.
A sales manager in US carmaker General Motors’ booth at the auto show told the Post that prices and promotional campaigns, rather than the vehicles’ design and quality, hold the key to a brand’s success in China because budget-conscious consumers are prioritising bargains when considering car purchases.
BYD, which is backed by Warren Buffett’s Berkshire Hathaway, posted a record net profit of 30 billion yuan for 2023, an 80.7 per cent year-on-year increase.
Its profitability lags General Motors, which reported a net income of US$15 billion last year, a 19.4 per cent year-on-year rise.
Some say that the discount war is drawing to a close.
Brian Gu, president of Xpeng, a maker of smart EVs in China, said prices would stabilise in the near term and that change would effectively propel EV development in the long term.
“Competition actually caused expansion of the EV sector and drove its penetration in China,” he told reporters at a media briefing on Thursday. “It encouraged more people to buy EVs and accelerated the curve of penetration.”
Post time: May-13-2024
