In China, a brutal price war has triggered an unprecedented reshuffle in the electric vehicle industry. New players like Weima, Gaohe, Jiyue, and Nazha have successively closed down, but this has not stopped the fierce competition among industry rivals. The guidelines issued by the Chinese government to reduce subsidies and eliminate overcapacity may lead to unemployment, affecting social stability.
According to CNN, in the spring of 2024, Li Hongxing, who was engaged in social media advertising operations, took on a client he believed to be a rising star in the Chinese electric vehicle market, Jiyue. As a marketing veteran in the automotive industry, Li Hongxing even borrowed money to advertise for Jiyue, hoping that this new electric vehicle startup company would eventually pay him back because in his eyes, the company had all the elements needed for success: efficiency, continually growing sales, and strong financial backers.
However, things did not go as planned. In less than half a year, Jiyue declared bankruptcy, turning Li Hongxing’s bold gamble into a nightmare, leaving him with debts as high as 40 million yuan (about 5.6 million USD). Until now, he has not received payment from the company. “It was a feeling of utter despair,” Li Hongxing told CNN.
The bankruptcy of Jiyue is not uncommon in the Chinese automotive industry, reflecting the brutal reality faced by an industry plagued by excessive competition. Over the past few years, in a series of brutal price wars, hundreds of brands have been forced out.
For a long time, the Chinese government has provided massive subsidies, low-interest loans, and policy support to the electric vehicle industry, allowing Chinese carmakers to expand their capacity unrestricted by market mechanisms. This has led to the emergence of a large number of electric vehicle manufacturers in China. At its peak, the electric vehicle industry in China reached nearly 500 domestic brands, but also ushered in severe overcapacity. Numerous carmakers have engaged in fierce competition to grab market share, with ruthless price wars eroding corporate profits, putting immense pressure on automakers and suppliers, struggling under extremely low margins.
According to information from several suppliers, automakers, and industry experts shared with CNN, even industry leaders are pressuring parts manufacturers to sell products below cost and extend payment terms by months.
In July of this year, the Central Committee of the Chinese Communist Party set “addressing disorderly low-price competition” as a policy priority. In recent months, Beijing has also introduced a series of measures, warning industry leaders not to engage in price wars and issuing guidance urging local governments to reduce subsidies and eliminate overcapacity.
However, economists and industry experts doubt if these measures can quickly solve the problems. There seems to be no simple solution to eliminate overcapacity. Experts suggest that merely cutting overcapacity and allowing a few brands to survive in the environment could lead to mass unemployment and potentially further drag on economic growth.
Chetan Ahya, Chief Asia Economist at Morgan Stanley, when discussing China’s recent actions, stated that simply reducing overcapacity is not a perfect solution, and stopping investment decisions could lead to social stability issues.
Employment is at the core of social stability in China and is the foundation of the Communist Party’s rule. According to data provided by CEIC earlier this year, the automotive manufacturing industry in China employs over 4.8 million people.
Despite regulatory agencies in China requiring automakers to halt price wars, Stephen Dyer, head of AlixPartners’ Asian automotive business, told Reuters that price wars may continue. Businesses may attract consumers through hidden factors such as insurance subsidies and zero-interest financing, rather than direct price cuts.
Domestic competition pressures have driven automakers like BYD to seek to export low-cost vehicles overseas, but this has triggered tariff retaliations from key markets like the US, EU, Mexico, and Canada. The US and Canada, in particular, have imposed tariffs as high as 100% on imported Chinese cars.
Unlike traditional vehicles, the intelligent systems inside new energy vehicles require car manufacturers to provide long-term stable operation and maintenance. Therefore, vehicles left behind by bankrupt companies are often referred to as “orphaned cars.”
The bankruptcies of companies like Jiyue and Nazha have not only dealt a huge blow to investors but have also left car owners who have already purchased vehicles in uncertainty regarding aftersales services. Nazha Motors officially entered bankruptcy proceedings in June this year, rendering the quality assurance commitments to car owners as worthless.
Many Nazha car owners received a surprising text message on September 11th, saying, “Your car has been disconnected from the network, please purchase data traffic yourself.” Due to the suspension of services by the car networking service provider, owners are unable to use basic functions such as remote control, air conditioning operation, online navigation, and must purchase data packages at their expense to resume normal use.
In response to the “network disconnection crisis,” the car networking service provider “Lenovo Understands” stated that Nazha Motors had not been able to pay service fees due to operational issues, leading to the service being suspended after months of unsuccessful negotiations. This “network disconnection crisis” has completely nullified Nazha’s promised “three years of free data” service.
After news of Jiyue’s bankruptcy spread, it caused a stir on social media, eventually prompting Jiyue’s two major shareholders, Baidu and Geely, to clean up the mess. Baidu pledged to continue maintaining the onboard systems of over ten thousand car owners and Geely promised to take over Jiyue’s aftersales service.