Salient points
- The current price war in the Chinese electric vehicle industry, led by the market leader Byd Company Limited, is causing a significant drop in the prices of shares and pushing the government intervention to curb the aggressive discount and prevent further market instability.
- Despite the attempts of the Chinese authorities to manage the situation, analysts provide that the surcharge and the weak demand will force many car manufacturers, in particular the smallest ones, to consolidate or leave the market, as highlighted by the exit of 16 new brands of energy vehicles in 2024.
- Concerns have emerged as regards long -term sustainability of Chinese car manufacturers, since the discount of the profit margins and the value of the brand is incessant, also risking the quality and safety of the vehicles produced between financial pressures.
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The price war that envelops the China electric vehicle industry has already sent the prices of the shares and has caused an unusual level of intervention by Beijing. Shakeout may have just started.For all the efforts of the Chinese government to prevent cuts at the prices by the market leader Byd Co. from transforming into a vicious spiral, analysts affirm that a weaker question combination and an exceptional surcharge will affect the profits to the strongest brands and forces the most requested competitors to bend. Even after the number of electric vehicles producers began to restrict for the first time last year, the industry is still using less than half of its production capacity.
The Chinese authorities are trying to minimize the repercussions, rubbing the sector for the “mice competition competition” and convening the leaders of the main brands in Beijing last week. Yet the previous attempts to intervene have had little success. At least in the short term, investors bet that few car manufacturers escape unknown: Byd, probably the largest winner of the consolidation of the sector, has lost $ 21.5 billion in market value since his actions have reached the peak at the end of May.
“What you are seeing in China is disturbing, because there is a lack of question and an extreme cutting of prices,” said John Murphy, senior automotive analyst of the Bank of America Corp. In the end there will be a “massive consolidation” to absorb excessive capacity, Murphy said.
For car manufacturers, the incessant discount erodes the profit margins, undermines the value of the brand and forces also well -capitalized companies in unsustainable financial positions. Low price and low quality products can seriously damage the international reputation of “Made in belt” car reputation, observed the newspaper of the people, a outlet controlled by the Communist Party. And that Knock would have come just like the byd to Geely, Zekr and Xpendg models begin to collect awards on the world scene.
For consumers, the drop in prices may seem useful but they mask deeper risks. The unpredictable prices discourage long-term confidence-people complain about Chinese social media, wondering why they should buy a car now when it could be cheaper next week-ventre there are random car manufacturers, since they cut costs to stay afloat, they can reduce investments in quality, safety and after-sales service.
The CEO of car said last week that they have to “self -regulate” and should not sell cars below the cost or offer unreasonable price cuts, according to people who are familiar with the matter. The question of cars in Mazziera Zero-in also emerged to which vehicles without distance on their Odometers are sold by retailers in the second hand market, widely seen as a way for car manufacturers to artificially inflate sales and a clear inventory.
Chinese car manufacturers collided much more aggressively than their foreign counterparts.
Murphy from Bofa said that US car manufacturers should simply go out. “Tesla must probably be there to compete with those companies and understand what is going on, but there is a lot of risk for them.”
Others leave no room for the doubt that Byd, the car brand vendors n. 1 of China, is opening the way to the cuts at prices.
“It is obvious for everyone that the greatest player is doing it,” said Jochen Siebert, CEO of Auto JSC Automotive Consulting. “They want a monopoly in which everyone else renounces.” Byd’s aggressive tactics are raising concerns about car dumping potential, dealer management problems and “shake suppliers,” he said.
The tumult of prices is also taking place on a background of significant surcharge. The average rate of use of production in the Chinese automotive industry was only 49.5% in 2024, the data compiled by the Gasgoo Automotive Research Institute based on Shanghai.
In the meantime, an ALIXPARTRNERS report in AliXPartners highlights the intense competition that is starting to emerge among the new producers of energy vehicles or companies that produce pure battery cars and plug-in hybrids. In 2024, the market saw its first consolidation between brands dedicated to Nev, with 16 outings and 13 launch.
“The Chinese automotive market, despite its substantial scale, is growing at a slower speed. The car manufacturers must give the utmost priority now to take a greater market share,” said Ron Zheng, partner of global consultancy Roland Berger Gmbh.
Jiyue Auto shows how quickly things can change. Just over a year after launching his first car, the automotive manufacturer jointly supported by big names Zhejiang Geely Holding Group Co. and the Giant of Baidu Inc. technology, he began to reduce production and look for new funds.
It is a dilemma for all car manufacturers, but above all smaller. “If you don’t follow the example once a leading company makes a price move, you could lose the possibility of staying at the table,” said AlixPartnersi Zhang Yichao consultant. He added that China’s low -capacity use rate, which is “basically fueling” competition, is now also under more pressure from the uncertainties of exports.
While the push to find an outlet for excess production is pushing multiple Chinese brands for export, international markets can only offer a little relief.
“The US market is completely closed and Japan and Korea could close very soon if they see an invasion of Chinese car manufacturers,” Siebert said. “Russia, which has been the largest export market last year, is now becoming very difficult. Furthermore, I no longer see the South Asia -est as an opportunity.”
Cost cutting pressure also brought analysts to express concern for the risk of financing of the supply chain.
A byd question reduced prices to one of its suppliers at the end of last year attracted a check on how the car giant could use funding from the supply chain to mask the debt in a hot air balloon. A GMT Research accounting report has brought the real net debt of Byd to more than 323 billion yuan ($ 45 billion), compared to 27.7 billion yuan officially on his books at the end of June 2024.
The pain is also bleeding in the Chinese dealdership network. The groups of dealers in two provinces have failed since April, both selling by byd cars.
Beijing’s meeting with the car manufacturers last week was not the first attempt to cease fire. Two years ago, in the middle of 2023, 16 important car manufacturers, including Tesla Inc., Byd and Geely signed a pact, testified by the China Association of Automobile Producter, to avoid “abnormal prices”.
In a few days, Caam eliminated one of the four commitments, stating that a reference to the prices in the commitment was inappropriate and in violation of a principle sanctioned by the antitrust laws of the nation.
The discount continued tirelessly.
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