During the China Auto Forum held on July 12, 2024, Chinese Communist Party officials acknowledged the presence of disorderly competition in the mainland’s automotive market, with many companies experiencing decreased profits or even losses, thus impacting the stability of the industry and supply chains.
At the 2024 China Auto Forum, Xin Guobin, Deputy Minister of the Ministry of Industry and Information Technology of the People’s Republic of China, stated that the current automotive consumption demand in China is not strong, and intense competition has led to disorderly competition, further affecting the stability of the industry and supply chains.
According to statistics from the China Association of Automobile Manufacturers, in the first half of 2024, the total sales volume of automobiles in mainland China was 11.255 million units, representing only a slight 1.4% increase compared to the same period last year.
In a bid to capture market share, auto companies have initiated a price war this year. The China Passenger Car Market Information Joint Conference (CPCA) reports that between February (after the Chinese New Year) and the end of April 2024, the number of car models participating in price reductions approached the full-year total from 2023, with some popular models seeing price cuts of up to nearly 20%. Recently, several key models from SAIC Volkswagen simultaneously announced price cuts, with the highest comprehensive discount reaching up to 59,000 Chinese yuan.
The price war among auto companies has led to increasingly narrow profit margins for both carmakers and supply chain companies. According to CPCA statistics, in the first five months of 2024, the profit margin of the automotive industry was 5.3%, lower than the average profit margin of 6.1% for industrial enterprises during the same period.
While electric vehicle sales in mainland China are growing rapidly, the sector is facing severe losses, with profitability remaining a challenge. According to a report on Caixin’s website on July 13, only Tesla, BYD, and NIO among electric vehicle companies were able to achieve profits. However, even NIO, which was profitable last year, recorded losses in the first quarter of this year, with operating losses amounting to 580 million yuan and free cash flow turning negative from a positive 6.7 billion yuan in the same period of 2023.
In addition to challenges faced by electric vehicle companies, traditional fossil fuel vehicle manufacturers are also experiencing difficulties. CPCA data indicates that in the first half of 2024, retail sales of gasoline-powered passenger vehicles in China totaled 5.73 million units, representing a 13% decline compared to the same period last year; in June alone, gasoline vehicle sales reached 910,000 units, down by 27% year-on-year.
On June 7, Li Shufu, Chairman of Geely Holding Group, publicly stated that China’s automotive industry has the highest level of internal competition globally, with successive waves of price wars. For any industry to achieve healthy development, it must ensure better economic efficiency in terms of input and output. Endless internal competition and aggressive price wars may lead the industry towards cutting corners, falsifying information, and engaging in disorderly competition that does not comply with regulations.
Furthermore, consulting firm AlixPartners released its annual “Global Automotive Market Outlook” on July 10, pointing out that the number of Chinese electric vehicle brands may decrease from 137 in 2023 to 19 by 2030, an over 80% reduction.
AlixPartners based this prediction on the fact that for an electric vehicle brand to survive, it needs to achieve a minimum annual sales volume of 400,000 pure electric vehicles or 200,000 plug-in hybrid electric vehicles, while in 2023, the average annual sales volume of Chinese electric vehicle brands was only 156,000 units. By 2030, out of the current 137 electric vehicle brands, only 19 brands are projected to capture over 70% of the market share, leaving the remaining 118 brands with an annual average sales volume of 46,000 units, making it economically unsustainable.