In August, China’s passenger car market showed a decline in both production and sales, with sales dropping for the fifth consecutive month. Some car manufacturers are struggling with the dilemma of increasing revenue without increasing profits, especially six listed new energy vehicle companies, of which all but one are in the red.
On Monday, September 9, the China Passenger Car Association (CPCA) released its analysis for the national passenger car market in August 2024. The production of passenger cars across the country decreased by 3.7% year-on-year to 2.158 million vehicles, while sales dropped by 1.0% to 1.905 million vehicles, marking a fifth consecutive monthly decline. The conventional fuel vehicle sales for the first eight months of the year dropped by 15%, with August seeing a 28% decrease in sales.
However, the electric vehicle market presented a different picture. Sales of pure electric vehicles and plug-in hybrid electric vehicles for the first eight months increased by 35.3% to 6.016 million vehicles. In August alone, sales reached 1.027 million vehicles, up by 43.2% year-on-year and 17.0% month-on-month.
Despite the rapid growth in the electric vehicle market, some car manufacturers find themselves trapped in a cycle of increasing revenue without improving profitability, particularly the six listed new energy vehicle companies. Their financial reports for the first half of the year revealed that, except for one, the other five companies reported losses totaling 20.7 billion yuan.
Among these companies, Jike Electric posted a revenue of 34.8 billion yuan in the first half of the year, with a 63% year-on-year increase but a net loss of 3.8 billion yuan. NIO recorded a revenue of 27.4 billion yuan, a 40.6% increase, but suffered the highest net loss among the six companies, reaching 10.2 billion yuan. Xpeng’s revenue stood at 14.7 billion yuan, showing a 61.2% increase, while its net loss amounted to 2.7 billion yuan. Xiaomi’s automotive division generated 6.4 billion yuan in revenue in the first quarter, with a net loss of 1.8 billion yuan. Lastly, Leapmotor reported a revenue of 8.8 billion yuan, marking a 52% increase, but recorded a net loss of 2.2 billion yuan, with a gross profit margin of 1.1%, the lowest among the six companies compared to -5.9% from the same period last year.
The declining profitability is not limited to new energy vehicle companies but is a trend seen across the entire automotive industry.
According to data from the National Bureau of Statistics of China, the profitability of the automobile manufacturing industry has been decreasing year by year since 2017. From 2015 to 2023, the profit margin of the automobile manufacturing industry was 8.7%, 8.3%, 7.8%, 7.3%, 6.3%, 6.2%, 6.1%, 5.7%, and 5.0%, respectively. In the first half of this year, the profit margin remained at 5%, but compared to 2015, the profit margin of the automotive industry has decreased by 3.7 percentage points.
Cui Dongshu, the Secretary-General of the CPCA, recently stated that the profit margin of Chinese automobile companies (Fortune 500 companies) is only 3%, while in Germany and Japan, it ranges from 6% to 7%. Compared to the average profit margin of 5.8% for the overall industrial enterprises, the profit margin of the automotive industry in China remains relatively low.
Cui Dongshu believes that the national subsidy policy for electric vehicles has stimulated market demand, with more than 80% of applicants choosing to purchase new energy vehicles when trading in their old ones.
According to a report by the CPCA, with the implementation of policies promoting vehicle replacement and the gradual launch of local trade-in schemes, terminal prices have begun to stabilize after the anti-speculation measures, leading to a further easing of consumer wait-and-see sentiment, resulting in a slight recovery in the overall car market momentum.
On August 16, the Chinese Ministry of Commerce and seven other departments issued a notice on further enhancing the work related to the trade-in of old cars for new ones. The notice stipulated that individual consumers who scrap old vehicles and purchase new ones would receive subsidies of up to 20,000 yuan for new energy passenger vehicles and 15,000 yuan for gasoline passenger vehicles, up from the previous 10,000 yuan and 7,000 yuan, respectively.
However, China’s national subsidy policy has faced retaliatory tariffs from Western countries.
In August, the Canadian government decided to join the United States and the European Union in imposing a 100% tariff on Chinese-made electric vehicles starting from October 1, while the European Union announced additional tariffs ranging from 9% to 36.3% on Chinese-made electric vehicles on top of the standard 10% import duty for cars. The United States had initially planned to impose a 100% tariff on Chinese electric vehicles, along with 50% tariffs on semiconductors and solar panels from August 1, but due to the need for further research involving over 1,100 public comments from the industry, the deadline was postponed. It was later announced on August 30 that a decision will be made in the coming days.
In addition to manufacturers, Chinese car dealers are also facing losses.
Data from the China Automobile Dealers Association shows that over half of the dealers operated at a loss from January to June, marking a 7.3% increase in the loss rate compared to the previous year.
Guanghui Automobile Services Co., Ltd., the second-largest automobile dealer in China, was delisted from the Shanghai Stock Exchange in August as its stock price remained below 1 yuan for 20 consecutive trading days. The company has been struggling with losses in recent years, with a loss of 4.147 billion yuan in the fourth quarter of 2022. In 2023, they closed 50 less profitable branch outlets.