BEIJING — The competitive landscape of China’s electric vehicle sector has intensified, posing implications for both the domestic economy and the broader global automotive market.
Recently, industry leader BYD rolled out extensive price reductions — in some cases reaching 30% — on various lower-end battery electric and hybrid models. Notably, the Seagull compact car’s price has plummeted to 55,800 yuan ($7,750).
Other prominent Chinese automotive manufacturers have started to mimic this approach.
According to Zhong Shi, an analyst with the China Automobile Dealers Association, “BYD’s recent maneuvers have stirred significant anxiety within the industry.” This sentiment indicates a prevailing concern among smaller automakers over their competitive viability.
The auto sector has been one of the few bright spots in an economy experiencing sluggish growth and diminished consumer demand. China’s latest economic strategy to boost consumption includes subsidies for new energy vehicles, a category encompassing battery-powered and hybrid vehicles.
“This latest wave of price competition highlights the ongoing supply-demand imbalance, which is further aggravating deflationary pressures,” emphasized Robin Xing, Chief China Economist at Morgan Stanley, in a report released Wednesday.
He added, “Despite increasing calls for a shift toward greater consumption, the underlying supply-driven framework appears to remain prevalent, making any reflation efforts challenging.”
China’s electric vehicle market has been embroiled in a pricing battle for the past two years, partially driven by Tesla.
This cycle has put considerable pressure on traditional automakers, including those state-owned, as new energy vehicles now represent approximately half of all new passenger car sales in China.
In a recent interview with Chinese media, Great Wall Motors Chairman Wei Jianjun warned of a potential “Evergrande” scenario looming over China’s auto sector. He likened the rapidly evolving electric vehicle industry to the heavily indebted real estate market, highlighting the risks involved.
This comparison references the collapse of China’s real estate giant, Evergrande, which defaulted on its debts in late 2021 amidst a downturn in the property market after the government tightened regulations on high leverage. This left them struggling to complete projects that had previously been sold.
As scrutiny over the financial stability of automakers intensifies, BYD recently dismissed claims suggesting pressure was being exerted on one of its dealers, Jinan Qiansheng, regarding liquidity issues. The dealer has not responded to a request for comment from Finance Newso.
In the formative years of China’s state-supported initiatives to dominate the electric vehicle market, the Ministry of Finance found at least five firms engaged in dishonest practices, defrauding the government of more than 1 billion yuan ($140 million). This prompted a surge of startups, but only a few have since endured.
A significant 19% price drop over two years
According to a Nomura report this week, the average retail price of cars in China has seen a decline of approximately 19% over the past two years, now standing around 165,000 yuan ($22,900). Price reductions have been even more drastic for hybrid or range-extended vehicles, experiencing a 27% average drop, while battery-electric cars recorded a 21% decline. In comparison, traditional internal combustion engine vehicles faced an 18% price cut.
In the United States, the average price of a new car reached $48,699 in April, reflecting a nearly 1% increase from two years prior, as reported by data from Cox Automotive and analyzed by Finance Newso. This figure rises to $59,255 for the average electric vehicle sold in the same month.
BYD’s recent price slashes did not encompass its high-end models, which generally start around 200,000 yuan, including the flagship Han electric sedan. Notably, the newest version of the Han, launched in February, is about 10% cheaper than its predecessor, as noted by Reuters.
The automotive powerhouse, initially supported by Warren Buffett, has swiftly garnered market share in China with its diverse lineup of vehicles across various price segments. Recent reports indicate BYD achieved a net profit surge of 49%, totaling 14.17 billion yuan last year, although current liabilities rose by over 60% to 57.15 billion yuan while cash reserves experienced a slight dip to 102.26 billion yuan.
The price war is poised to continue
Fitch managing director Ying Wang remarked that the rapid sales growth in new energy vehicles within China is more about redistributing market share from internal combustion engine vehicles rather than expanding the overall automobile market. The sector has not seen significant growth since 2018, and sales are expected to rise by only single-digit percentages this year.
According to Wang, companies will likely continue to implement price cuts to enhance their market presence in China throughout the year. Alternatively, automakers might start offering additional features, such as advanced driver-assist systems, at no extra cost to entice consumers rather than charging for them as add-ons.
For instance, Zeekr, supported by Geely, announced in March that it would offer its advanced driver-assist system free of charge, a move contrasted by Tesla’s approach to charge extra for a comparable feature. Earlier, BYD had announced enhancements to include driver-assist capabilities in over 20 of its car models.
In recent months, Chinese leadership has increasingly emphasized the need to tackle non-productive competition, often referred to as “involution.” This topic was highlighted in the premier’s annual report in March and the subsequent market regulator meeting advocating for a comprehensive rectification of “involutionary” practices.
However, the substantial drive to produce economically priced electric vehicles in China, coupled with the automakers’ ambitions to penetrate international markets, has raised concerns regarding the repercussions for other countries’ automotive sectors.
The European Union has implemented tariffs on imports of electric vehicles manufactured in China, triggered by investigations into the companies’ reliance on governmental subsidies in their production processes. Additionally, the United States has enacted a staggering 100% tariff on Chinese electric vehicles, effectively squashing any aspirations for these cars to enter the American market.
Despite these tariffs, their impact in the EU has been minimal. April statistics revealed that BYD surpassed Tesla in sales across Europe for the first time, coinciding with a 49% plunge in Tesla’s European sales, according to the European Automobile Manufacturers’ Association.
— Finance Newso’s Bernice Ooi contributed to this report
