In today’s world, China’s mainland faces an oversupply of goods and insufficient domestic consumption, leading to currency tightening. With the government subsidies reducing product prices and the devaluation of the Renminbi, China’s exports have increased by around 10% in the past two years. In plain terms, it’s like selling “bargain-priced” goods to the world, essentially bringing price competition globally and causing concerns among various countries.
Currently, the European and American electric vehicle industry is taking the hit. According to statistics from the European Transport and Environment Federation (T&E), approximately nearly 20% of electric vehicles sold in the European Union in 2023 were manufactured in China. With Chinese car manufacturers like BYD continuing to capture European market share, T&E estimates that by the end of 2024, this number will rise to 25.3%.
Tesla, a leading electric car producer, is facing significant impact from low-priced models. Tesla’s recent announcement of a global 10% workforce cut has sparked public attention, and the German automotive industry is also facing a crisis. Ferdinand Dudenhöffer, Director of the Bonn Research Center for European Automotive Research and a prominent figure in the German automotive industry, stated that this year is a significant year for the Chinese automotive industry to substantially reshape the global landscape, leaving Germany in a dilemma.
Stellantis, a French conglomerate owning brands such as Peugeot and Fiat, recently warned that many Chinese car companies are selling electric vehicles at roughly half the price of European counterparts. Uwe Hochgeschurtz, Stellantis’s head of European operations, pointed out that Chinese companies could set prices so low that it’s unimaginable for Europeans.
In practice, the downward price competition and internal competition within companies are harming Chinese enterprises the most. Xiaomi Group’s Chairman, Lei Jun, raised concerns with his remarks at the 2024 Beijing Auto Show, criticizing the blind internal competition among Chinese car manufacturers, resulting in vehicles becoming increasingly homogenized and lacking in innovation. He expressed disappointment with the direction the industry is heading, highlighting the abundance of low-quality and similar products flooding the market.
With the reduction in technological barriers in China’s electric vehicle industry, many new companies have entered the competition. As a result, these new entrants design cars like choosing dishes at a buffet, creating a mix of similar vehicles with little differentiation in performance and features.
As the market becomes more homogenized, each brand’s cars are virtually identical, leading to intensified price wars to attract consumers by reducing costs and selling at lower prices. However, as the value created by products diminishes, companies find it challenging to invest substantial amounts in developing new technologies and products, resulting in a market flooded with cheap but subpar products.
This situation has left Lei Jun feeling despondent. However, even Lei Jun cannot avoid being drawn into the cutthroat competition over prices in the red ocean market. Xiaomi’s SU7 standard version is priced $30,000 lower than Tesla’s Model 3, with the top configuration priced at $299,000. A recent report by Citigroup indicated that for every SU7 car sold this year, Xiaomi is expected to incur an average loss of $6,800, amounting to a projected $4.1 billion loss in the entire car manufacturing business.
Overall, Chinese electric vehicle companies are generally operating at a loss. For instance, NIO Motors reported a net loss of $20.72 billion in 2023, with a cumulative net loss of $86.63 billion between 2018 and 2023.
It is important to note that “internal competition” is not merely about intense work or price competition; it’s a societal issue that can harm the entire social environment. When an industry reaches a state of intense internal competition, products circulating in the market become mediocre and even harmful. Recent incidents of self-ignition in Chinese new energy vehicles and toxic food scandals in the food industry exemplify this phenomenon.
In contrast, high-quality innovative products that come with a higher price tag struggle to survive in the market. Over time, everyone’s standard of living will decline.
From an economic perspective, not only will the product market degrade, but the labor market will also be affected. With low product profitability, companies need to cut costs, leading to lower wages for workers. Some repetitive tasks could be replaced by AI automation, resulting in an increase in unemployment.
As a result, consumers facing pay cuts or unemployment will have less purchasing power, prompting further price reductions in products. This creates a vicious cycle.
Therefore, the international community should be deeply concerned about China’s surplus production capacity as it not only leads to cutthroat price competition and currency tightening but also introduces a unique form of internal competition endemic to the Chinese system. This includes low product value, low industry profits, low wages, and high unemployment rates, gradually eroding the normal market dynamics upon which society relies for survival.