Wen Fangyao
Summary: A turning point has come a long way
Recently, at the 2024 China Automobile Chongqing Forum, Zeng Qinghong, chairman of Guangzhou Automobile Group, publicly said that it is not a way to roll down. He believes that there is no problem with the price of volume, which is determined by the relationship between supply and demand and the laws of the market, GAC does not oppose the price war, nor is it afraid of the price war, but it must be rational and have a bottom line, and cannot be excessive. It's okay to make profits, but it's not sustainable. Enterprises cannot survive without benefits, which will have a negative impact on tax revenue, employment and upstream and downstream industries.
Li Shufu, chairman of Geely Group, also said: "The healthy development of any industry must be manifested in the input-output ratio, endless involution, simple and crude price wars, the result of which is to cut corners, counterfeit and sell fakes, and non-compliant do not need to compete." ”
These views have caused a seismic shift in the industry. Obviously, they are saying this not only for their respective companies, but also for the entire Chinese auto industry.
Just because, the price war in China's auto market has been fought until now, and the industry can be described as full of grief and "public resentment boiling".
At the critical moment of rushing sales in the middle of the year, the price of the entire automobile market fell collectively, with B-class cars dropping to 130,000 yuan and A+ sedans selling to 80,000 yuan. "Loss" has become a common keyword for automobile manufacturers, dealers, and parts suppliers.
In this situation, the entire industry has begun to reflect on the vicious price war.
First, the violent price war is unsustainable
The price war of Chinese car companies will run through the whole year of 2023, which is not news, but the problem is that the price war in 2024 will be particularly tragic and can be called "violent".
In April this year, for example, there were more than 38 car companies, with a total of 126 car series, to reduce prices or adjust preferential treatments, including 84 traditional fuel models and 42 new energy models. This price war is even more tragic than when BYD threw out the Honor version of the family bucket in January this year, and it can be called a rare large-scale price reduction wave in China's auto market.
This kind of meat grinder-style competition has caused the industrial profits of production enterprises and the retail gross profits of dealers to decline sharply, and the industrial ecology has been deteriorating, which has brought some car companies, dealers, and parts suppliers to the brink of collapse.
And Zeng Qinghong, Li Shufu and other bigwigs oppose this kind of "blood-lossing" involution. Obviously, they are worried that if this price war continues, it will affect the development track of China's auto industry.
Zeng Qinghong even suggested that when pure electric vehicles account for 50% of vehicle sales, he hopes that the relevant government departments will study the topic of the same rights of oil and electricity, and balance the development rhythm of new energy and fuel vehicles.
From an objective point of view, although the current sales of new energy vehicle companies are rising, except for BYD, Tesla and Li Auto, other new energy vehicle companies are in a state of loss, and all rely on external investment to continue their lives. At present, this situation of no bottom line volume price has caused many companies to lose more and more badly, and this situation is obviously unsustainable.
Everyone knew that this was not the way to go, and everyone seemed to be waiting for a turning point.
Second, new signs
The signs of this turnaround may be: in May this year, the promotional discounts of automobiles, especially new energy vehicles, which lasted for more than a year, showed a rare reduction callback, and did not continue the trend of discount expansion in the first four months.
You must know that since January last year, the number of promotional models and discounts of domestic new energy vehicle companies have been refreshing high due to price wars.
The monthly comprehensive promotion rate of new energy passenger vehicles has soared from 2.4% at the beginning of last year to 12.8% in April this year, and the number of promotional models has also increased from dozens to nearly 100.
However, despite the sharp price cuts of terminal car companies, the sales volume and overall inventory level of automobiles have not continued to improve, and the transaction conversion effect brought about by the price decline has weakened. Therefore, the price reduction intensity of new energy vehicle companies began to pull back.
In May this year, the comprehensive promotion rate of new energy passenger vehicles was revised to 9.7% for the first time, down 3.1 percentage points month-on-month, and the year-on-year growth rate dropped from nearly 10 percentage points to 3.5 percentage points.
The number of models with price reductions also decreased by 9 year-on-year and by 44 to 10 month-on-month, returning to the level of the beginning of last year. This indicates that the price reduction tide of new energy vehicles has temporarily ended.
Wall Street Insight Research believes that the main reason is that the price war has touched the cost line. In addition, in May, no big star car companies took the lead in cutting prices, or new players entered to drive the price reduction following effect. Referring to the previous Tesla, BYD, Xiaomi Auto and Wenjie, etc., will trigger a price reduction follow-up effect.
Despite the pullback in discounts, the pressure on auto inventories has not increased at the same time. In May, China's auto dealer inventory warning index was 58.2%, down 1.2 percentage points from the previous month.
This may be due to the consumption boost brought about by the release of new cars at the auto show and the release of the "Action Plan for Promoting the Trade-in of Consumer Goods", which is reflected in the large increase in car orders in May, especially around the May Day holiday.
In addition, the weakening of price cuts by new energy vehicle companies has also made many wait-and-see consumers choose to end the market.
Entering June, there are some new signs in China's auto market: some car companies are not as fierce as in May.
For example, Li Auto announced in June that it can enjoy a financial car purchase plan with a minimum down payment of 0 yuan before the end of the month. The down payment of L6 starts at 0 yuan, and the daily payment can be as low as 154 yuan. Li Auto also launched a limited-time car purchase activity for the Dragon Boat Festival, as long as you order Li Auto's L7, L8 and L9 models from June 8 to June 18, you can get a car purchase gift package with a total value of 12,700 yuan.
In May, Ideal adjusted the price system of the 2024 Ideal L7, Ideal L8, Ideal L9 and Ideal MEGA, with a price reduction range of 18,000-30,000 yuan, and new users and users who have ordered but not delivered can enjoy the new price.
In June, Geely Automobile's comprehensive trade-in policy subsidy was 63,000 yuan, and the minimum time limit for all models was 50,900 yuan. In June, the preferential measures were narrowed, and the preferential policies showed a cash discount of 23,000 yuan, a replacement subsidy of 22,000 yuan, and a total of 54,900 yuan for all models.
Compared with May, the preferential strength of NIO and Leapmotor basically continued the previous policy and did not change much.
It seems that the price war has not extended further.
Third, stimulating sales does not necessarily depend on price reduction
On the other hand, at the beginning of this year, all major new energy vehicle companies set annual sales targets for 2024. At present, there is little problem for the leading new energy vehicle companies to achieve their goals, but the performance of the new car-making forces is not satisfactory.
The reasons for this are of course varied, but one thing should not be left unnoticed: when the growth rate of market sales slows, the stimulus effect of price wars is far less than expected.
As a result, many car companies began to "move the knife" on the marketing department, trying to use internal changes to respond to changes in the external situation.
Not long ago, Li Auto adjusted its organizational structure and merged the functions of retail and delivery headquarters into sales. Previously, Ideal had divided its sales business into two separate divisions: retail and delivery. Because the assessment indicators of the two departments are different, in order to avoid the impact on sales, the ideal integration of the two departments can avoid internal friction to the greatest extent.
Li Auto made such an adjustment because of huge market pressure. According to the first-quarter financial report, the operating loss in the first quarter of 2024 will reach 585 million, and the net profit will decline by 36.7% year-on-year and 89.7% quarter-on-quarter. Some media broke out that Li Auto adjusted the previous annual delivery target of 800,000 vehicles to 480,000 units.
Recently, Leapmotor has also adjusted its marketing system, merging the original three sales departments of channel sales, industry sales and retail management team into one "sales department", and the head of the sales department reports to Xu Jun, chief operating officer (COO).
According to the announcement of Leap, after this adjustment, the three departments will form a joint force to sell cars together. The retail management team was able to work with the original sales area "with the aim of increasing the sales capacity of the retail stores". At the same time, Leapmotor also abolished the company's overseas expansion department. This is well understood, Leaprun and Stellantis Group have established a joint venture company to be responsible for the overseas marketing service business of the Leaprun brand.
Leapmotor's sales target for 2024 is 25 to 300,000 units, and at present, the cumulative sales volume in the first five months is 66,580 units, and the monthly delivery volume in the next seven months will reach more than 34,700 units. In addition, the original price of Leapmotor is lower than that of Wei Xiaoli, and the sales volume cannot rise, so it is even more difficult to increase the revenue. Therefore, it is not possible to run zero.
Xpeng Motors is constantly changing. In May, Gu Yuanqin, vice president of the financial platform operation and management of Xpeng Motors, succeeded Wang Tong and concurrently served as the sales director of Xpeng Motors; At the beginning of 2024, after Daniel Zhang concurrently served as the general manager of the marketing company, he also served as the general manager of the product research and development center in May, directly managing the product planning department of the product research and development center; Because NIO will launch a new car Ledao L60 in September, it is naturally inevitable to make a big move in the organizational structure.
At about the same time, all of the above new forces have made organizational adjustments, which illustrates the fact that under the protracted price war, brands are returning to rationality and looking for a possibility - hoping to stimulate sales by using non-price reductions.
IV. Conclusion
"In the market economy environment, the price war is the most conventional means of competition, and it is impossible not to fight the price war at all, but there is no future only to fight the price war." Wang Xia, chairman of the Automotive Industry Committee of the China Council for the Promotion of International Trade and president of the Automotive Industry Chamber of Commerce of the China Chamber of International Commerce, said recently.
Judging from the current situation, the bullet of the price war will fly for a while, the low-price game of the automobile industry will continue, and the price war and the competition for market share are still the key words of competition.
Although it is not realistic to completely end the price war in the short term, it is clear that a single price war can no longer become a long-term competition model that Chinese car companies rely on. For those car companies that lose money and make money, if the positive profit cycle is not guaranteed, the window period to stay on the "table" will become shorter and shorter. Therefore, although the price war can achieve certain results in the short term, it may pay a greater price.
Of course, car companies are certainly going to cut prices for consumers, but if this short-term profit affects the sustainable development of China's auto industry, no one wants to see it. In short, this price war with no winners should end as soon as possible.