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The "price war" of Chinese automobiles may not be over

The "price war" of Chinese automobiles may not be over

Car K-line

2024-07-01 07:42Creators in the automotive field

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01 China's auto dealer inventory warning index rose to 62.3%, the second highest point of the year, indicating fierce competition in the market.

02 The ostensible "price war" is actually a manifestation of insufficient domestic demand in the Chinese market, and major car companies are passively involved in order to maintain market share.

03 Traditional car companies and new forces are different in terms of competitive strategies, traditional car companies rely on technology accumulation and industrial chain advantages, while new forces rely on capital power and multinational giants to support.

04However, the ongoing "price war" has led to a decline in the profits of car companies, which may affect the quality and safety of vehicles, and ultimately harm the interests of consumers.

05 Under the current downward pressure on the economy, China's auto market continues to face the impact of consumers' consumption downgrade and weakening willingness to buy cars.

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The "price war" of Chinese automobiles may not be over

Introduction: The overall performance of China's listed auto companies is under pressure, but the "price war" in China's auto market is rising wave after wave. According to the latest data, the inventory warning index of China's auto dealers has risen to 62.3%, the second highest point this year!

In the hot and hot month of June, many listed car companies and relevant persons in charge of automobile associations have stood up to express their hearts on the current situation of China's automotive industry, especially the "volume" that has been repeatedly mentioned now.

From the past "volume" configuration and "volume" marketing, to today's "volume" price, "volume" cost, and even the beginning of "volume" bottom line and "volume" morality.

China's auto industry, which seems to be in a thriving state, why is it still so "involuted" and fighting a "price war"? Logically, it is clearly out of the ordinary.

1) The surface of the "price war", the root cause of the "insufficient domestic demand"

At the beginning of 2023, I am afraid no one expected that the "price war" triggered by Tesla's price reduction in the Chinese market would be so long. At first, it was just a contest between a few new energy vehicle manufacturers, but soon all car companies in the Chinese market were coerced into "participating in the war".

The "price war" of Chinese automobiles may not be over

Entering 2024, the "price war" has not converged, but intensified.

On the surface, the "price war" is a means of market competition among listed car companies, but if we analyze the data of China's auto industry in recent years, we will find that its essence is a manifestation of insufficient domestic demand in the Chinese market.

On June 27, the National Bureau of Statistics released data showing that the profits of industrial enterprises above designated size increased by only 0.7% year-on-year in May, a sharp decline from the 4% growth rate in April.

In this regard, the statistician of the Industrial Department of the National Bureau of Statistics pointed out that the effective domestic demand is still insufficient, and the endogenous driving force needs to be strengthened.

The "price war" of Chinese automobiles may not be over

"Image source: China Association of Automobile Manufacturers"

Specific to the automotive industry, although China's automobile production and sales will both exceed 30 million units in 2023, a record high. However, according to data from the China Association of Automobile Manufacturers (hereinafter referred to as the "China Association of Automobile Manufacturers"), after reducing exports, China's domestic passenger car sales in 2023 will be 21.923 million units, a year-on-year increase of only 4.23%.

This is still 2.156 million units short of China's domestic passenger car sales peak of 24.079 million units in 2017.

The "price war" of Chinese automobiles may not be over

This means that after the peak, during 2018~2023, China's passenger car market has actually been in a state of sluggish and shrinking demand. (No wonder everyone sacrifices profits to survive)

Although China's domestic passenger car sales have rebounded year by year since 2020, the growth rate is far from enough to offset the negative growth of more than 20% in the previous three years. And last year's growth rate is narrower than that in 2022.

According to the statistics of the Passenger Car Association, in the first five months of 2024, the retail sales of passenger cars in the narrow sense fell year-on-year in three months.

Among them, due to the Spring Festival holiday in February, the decline of more than 20% is still reasonable, but in April and May, sales fell continuously, with a decline of 5.5% and 1.9% respectively.

The "price war" of Chinese automobiles may not be over

"Image source: Passenger Association"

Contrary to the lack of domestic demand, from 2017 to today, Chinese auto brands, especially new energy brands, have sprung up.

According to incomplete statistics, before 2017, there were only about 50 car brands in the Chinese market; In 2024, the 12 major listed automobile groups will have more than 60 independent brands, including joint venture brands, as well as new forces such as "Wei Xiaoli Zero", Xiaomi, and Huawei, and the number of brands has already exceeded 100. This does not include imported brands and those new forces of "PPT" car making.

In order to survive in the environment of "more monks and less meat", brands can only passively get involved in the "price war" to maintain market share.

2) Traditional car companies and new forces have different "volume" methods

"'Volume' is the competition of the market, is the law of nature, there is no need to be anxious, only actively embrace, participate in order to really come out of the competition."

The "price war" of Chinese automobiles may not be over

BYD Chairman Wang Chuanfu's speech at the 2024 China Automobile Chongqing Forum made the outside world feel that this absolute head car company in China has full confidence in the face of the "price war".

In January ~ May this year, BYD's cumulative sales increased by 26.8% year-on-year to 1.2713 million units, "far ahead", and to the annual target of 3.9 million ~ 4.2 million units, full speed forward.

The "price war" of Chinese automobiles may not be over

"Image source: BYD's May 2024 production and sales report"

With its scale and vertical integration capabilities in the industrial chain and raw materials, BYD's cost control ability is difficult for many car companies to achieve.

Geely, Great Wall, and Chery, which are also traditional car companies, have temporarily opened up the gap in scale by BYD, but the accumulation of technology, industrial chain, and supply chain is self-contained, making these car companies not afraid of "volume", but only how much profit is made by listed companies.

It's just that their "big boss" looks at the matter of "volume" and thinks differently.

"The degree of 'involution' of China's automobile industry has ranked first in the world!" The price war is intensifying, and there are two sides to this situation. Li Shufu, chairman of Geely Holding Group, said bluntly, "If the market environment is mature, the regulations are perfect and the implementation is strict, and the competition is transparent and fair, then this involution phenomenon can promote the progress of the industry; Otherwise, it may have a negative impact......"

The "price war" of Chinese automobiles may not be over

Li Shufu's attitude towards the "volume" was strongly supported by Wei Jianjun, chairman of Great Wall Motors. In a live broadcast event, Wei Jianjun paid tribute to Li Shufu's speech, and at the same time said, "We must do compliance things!" ”

In other words, Geely and Great Wall, which insist on legal and compliant car manufacturing, scoff at certain status quo that is contrary to the development law of the industry and is not conducive to the healthy development of the industry.

Different from traditional car companies, relying on their own heritage "volume", the new forces of car manufacturing generally rely on capital power.

It is worth affirming that the new forces have promoted the rapid development of new energy and intelligence in China's automotive industry through the "volume". But they "burn" money, like flowing water.

Li Bin, the founder of NIO, responded to "where is NIO's money" at the Chongqing forum, saying that "it is very simple, the loss is in R&D, and the loss is in infrastructure investment".

The "price war" of Chinese automobiles may not be over

He believes that NIO's success depends on its self-developed technology. But what he didn't say was that in the first quarter of 2018~2024, NIO will have a cumulative loss of more than 90 billion! Will capital endlessly drill into the "black hole" of losses?

In contrast, Xpeng and Leap rely on the capital market on the one hand, and on the other hand, they hold the capital thighs of multinational auto giants and continue to roll. and NIO have the same goal, focusing on one that does not spend their own money.

Financing and collecting money are the capital for new power car companies such as Weilai, Ideal, Xiaopeng, and Leap to engage in self-research and enter the "price war". After all, most of the money "burned" is not earned by itself, and there is no money to "hug the thighs" to engage in financing, and the capital market is "promising".

This kind of loss with no end in sight in the short term obviously cannot last long. Moreover, today's capital market environment is very different, and the market value of several new forces is not optimistic.

The "price war" of Chinese automobiles may not be over

"The picture shows the K-line chart of Li Auto's Hong Kong stocks"

Li Auto's market capitalization has fallen from nearly HK$390 billion at the end of February to HK$153.21 billion at the close of trading on June 27. The share price of NIO's Hong Kong stock has also dropped from HK$74.2 per share at the end of last year to HK$35.45 per share today, with its market value shrinking by more than 50%.

If one day, the new forces fade away from their "halo" and are no longer favored by capital, just like Weimar and Gaohe, the ultimate victims are only consumers.

3) The "price war" does not only affect car companies

Compared with the moderate "volume" of China's traditional car companies and the desperate "volume" of new car-making forces, although foreign brands are also cutting prices, they have the feeling of "sitting on the mountain and watching the tiger fight", and seem to be waiting for Chinese car companies to be "rolled" all over the body.

The "price war" of Chinese automobiles may not be over

Shen Jinjun, president of the China Automobile Dealers Association, said, "The world's car prices are going up, while China's car prices are going down."

Shen Jinjun's words went straight to the point. Nowadays, in the supply chain of China's automobile industry, except for the low price of lithium batteries, other production and manufacturing costs have not changed significantly. As the "price war" becomes more and more fierce, listed car companies may not only sacrifice profits.

The fundamental purpose of listed companies is to make profits, and Li Xueyong, deputy general manager of Chery Automobile, said that although the "price war" is inevitable, companies should create maximum value as the premise, not just reduce prices.

The "price war" of Chinese automobiles may not be over

"The picture shows the trend of BYD's quarterly revenue"

Affected by the "price war", even BYD, which has a phenomenal performance in 2023, saw its revenue in the first quarter of this year fall by more than 30% quarter-on-quarter, to 124.944 billion yuan, and the year-on-year growth rate narrowed from 79.83% in the same period last year to only 3.97%; The net profit of 4.771 billion yuan in the first quarter decreased by 47.09% from the previous quarter, and the year-on-year growth rate fell sharply from 379.42% in the first quarter of last year to 9.17%.

BYD is like this, not to mention other car companies?

In the long run, when profits are depressed to the point that car companies can't afford it, in order to continue to ensure the configuration of refrigerators, color TVs, and large sofas that consumers can see and touch, they can only compromise from the materials and processes that users can't see. This will have an unpredictable impact on vehicle quality, durability and even safety.

Such a product, even if the price is low, consumers can still feel at ease when using it?! Is this the "long-termism" of listed car companies?!

In addition, if the life of car companies is no longer easy, then as a dealer in the downstream of the automobile industry chain, it will be even more miserable.

The "price war" of Chinese automobiles may not be over

[Image source: China Automobile Dealers Association]

On June 30, the China Automobile Dealers Association released the results of the June auto dealer inventory warning index survey, which showed that the index was 62.3%, up 8.3 percentage points year-on-year and 4.1 percentage points month-on-month, and continued to be above the 50% boom and wither line, and the automobile circulation industry was still in a recession range.

It is worth noting that the index hit the second highest level of the year, second only to the 64.1% affected by the Spring Festival factor in February.

Zhongsheng Holdings, Yongda Automobile and Zhengtong Automobile, three large listed dealer groups, all suffered a sharp decline in gross profit margin and net profit attributable to the parent company last year.

Guanghui Automobile, once the largest automobile dealer in the universe, will have a net profit of only 86 million yuan in the first quarter of 2024, a year-on-year decrease of more than 85%; Its stock price has also been below 1 yuan per share for many consecutive days, and there is a risk of delisting.

The "price war" of Chinese automobiles may not be over

"The chart shows the trend of Guanghui Automobile's quarterly net profit"

At the same time, dealers are selling vehicles as soon as possible to recover funds, and they are also promoting preferential promotions, but once the dealers turn into losses, who will digest the products of listed car companies?

Views of AutosKline：

In the current environment of increasing downward pressure on the economy, consumers have classified automobile consumption as "optional" and "to be selected".

However, the ongoing "price war" has further exacerbated consumers' wait-and-see sentiment, and the Chinese auto market continues to face the impact of consumers' consumption downgrade and weakened willingness to buy cars.

Judging from the current fierce competition in China's auto market, it is difficult to stop the "price war" when the weakening market demand at this stage cannot be solved.

Next, how should car companies fight the "price war" in the traditional off-season of automobile consumption in June ~ August? Will it continue the momentum of last year's "off-season"? Or under the influence of continuous "involution", the market demand is released in advance, and after the "off-season", will it cause the peak season to not be prosperous?

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  • The "price war" of Chinese automobiles may not be over
  • The "price war" of Chinese automobiles may not be over
  • The "price war" of Chinese automobiles may not be over
  • The "price war" of Chinese automobiles may not be over
  • The "price war" of Chinese automobiles may not be over
  • The "price war" of Chinese automobiles may not be over
  • The "price war" of Chinese automobiles may not be over
  • The "price war" of Chinese automobiles may not be over
  • The "price war" of Chinese automobiles may not be over
  • The "price war" of Chinese automobiles may not be over
  • The "price war" of Chinese automobiles may not be over
  • The "price war" of Chinese automobiles may not be over
  • The "price war" of Chinese automobiles may not be over
  • The "price war" of Chinese automobiles may not be over
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