The price war, which devours the China’s electric vehicle industry, immersed the share prices and triggered an unusual level of intervention by Beijing. The shakeout can just start.
In all efforts by the Chinese government to prevent price reductions by the market leader Byd Co., which turn into a malignant spiral, say analysts say that a combination of weaker demand and extreme overcapacity in the strongest brands will make profits in profits and that difficult competitors will force folding. Even after the number of EV manufacturers started shrinking for the first time last year, the industry still uses fewer than half of its production capacity.
The Chinese authorities try to minimize the consequences and make the sector for “rats racing competition” and Summary of the heads of important brands After Beijing last week. However, previous attempts to intervene had little success. At least short -term betting investors only a few car manufacturers who will escape intact: BYD, probably the largest winner of the industry consolidation, has lost a market value of $ 21.5 billion since the end of May.
“What you see in China is worrying because there is a lack of demand and extreme price reductions”John Murphya senior automotive analyst at Bank of America Corp. Finally, there will be a “massive consolidation” to absorb excessive capacity, said Murphy.
For car manufacturers, relentless discounting undermines the profit margins, undermines the brand value and even forces well -capitalized companies into non -sustainable financial positions. Low inexpensive and high-quality products can seriously damage the international reputation of cars “Made-in China”, said People’s Daily, an outlet controlled by the Communist Party. And this knock would come the same when BYD models to Geely, Zeekr and Xpeng begin to collect awards on the world stage.
Price waste may seem advantageous for consumers, but they mask deeper risks. Unbeardful prices discourage long-term trust-people on social media complain China and wonder why they should buy a car if there is cheaper next week-while there is a random car manufacturer because they can reduce the costs for driving over water and reduce the investments in quality, safety and after-sale services.
Auto-COS was announced last week that they had to “regulate” themselves and that they should not sell cars under the costs or offer inappropriate price reductions, according to the persons familiar with the matter. The output of Zero-milet Cars also came to the use of vehicles on their odometers by dealers without a distance, and for car manufacturers who artificially inflate the sales and a clear inventory artificially and to clarify the inventory.
The Chinese car manufacturers have discounted much more aggressively than their foreign colleagues.
Murphy said the US car manufacturers should just get out. “Tesla Probably it has to be there to compete with these companies and understand what’s going on, but there is a lot of risk there. “
Others leave no doubt that BYD, China’s No. 1 sales car, is the guilty.
“It is obvious to everyone that the biggest player will do this,” said Jochen Siebert, Managing Director at Auto Consultancy JSC Automotive. “You want a monopoly in which everyone else gives up.” Byd’s aggressive tactics, raises concerns about the potential storage of cars, problems of dealer management and “squeezing the suppliers,” he said.
The pricing also unfolds against the background of a significant overcapacity. The average production rate in the Chinese automotive industry was only 49.5%in 2024, which was compiled by the Shanghai -based Gasgoo Automotive Research Institute.
In an April report by Alixpartners, the intensive competition will in the meantime underlines, which will occur under new Energy Vehicle Makers or companies that produce pure battery cars and plug-in hybrids. In 2024, the market recorded its first consolidation among the NEV-Dedicated brands. 16 started and 13 started.
“Despite its considerable extent, the Chinese automotive market is growing at a slower speed. Car manufacturers now have to give top priority for the more market share.” Ron Zhengsaid a partner of global advice Roland Berger GmbH.
Jiyue Auto shows how quickly things can change. A little more than a year after the start of his first car, the car manufacturer supported with big names Zhejiang Geely Holding Group Baidu Inc. of Co. and Technology began to scale production and search for new means.
It is a dilemma for everyone, but particularly smaller car manufacturers. “If you do not follow at will, if a leading company moves a revival, you may lose the chance to stay at the table”Zhang Yichaosaid. He added that China’s low capacity utilization rate, which “fundamentally fueled” the competition, is now even under more pressure from export uncertainties.
While the urge to find an outcome for excess production is more Chinese brands to export Chinese, international markets can only offer a certain relief.
“The US market is completely closed and Japan and Korea can close very soon when you see an invasion of Chinese car manufacturers,” said Siebert. “Russia, which was the largest export market last year, is now very difficult. I don’t see Southeast Asia more as an opportunity either.”
The pressure of the cost cut also caused analysts to be taken care ofLief chain financing risks.
A BYD price reduction to one of its suppliers at the end of last year took the exam on how the author rose may use the financing of the supply chain to mask its balloon debt. A report by Accounting Consultancy GMT ResearchByd’s true net debtNear 323 billion Yuan (45 billion US dollars), compared to the 27.7 billion Yuan officially in his books at the end of June 2024.
The pain is also bleeding in China’s Däln network. Have dealer groups in two provincesGoneBoth BYD cars have been selling since April.
Beijing’s meeting with car manufacturers last week was not the first attempt at an armistice. Two years ago in mid -2023, 16 large car manufacturers, including Tesla Inc., BYD and Geelysigned a pactWitness of the China Association of Automobile Manufacturers to avoid “abnormal pricing”.
Within a few days, Caam deleted one of the four obligations and said that a reference to the pricing in the promise was inappropriate and violated against a principle that was anchored in the nation’s antitrust laws.
The discounting continued unabated.
This story was originally on Fortune.com
