At the 2024 China Automotive Forum held on July 12, Chinese Communist Party officials acknowledged the presence of disorderly competition in the mainland automotive market, with many companies experiencing decreased profits or even losses, impacting the stability of the industry and supply chains.
According to Xin Guobin, Deputy Minister of the Ministry of Industry and Information Technology of the CCP, at the 2024 China Automotive Forum, current consumer demand for automobiles in China is not strong, and competition is unusually intense, leading to disorderly competition that further disrupts the stability of industrial and supply chains.
Statistics from the China Association of Automobile Manufacturers show that in the first half of 2024, mainland China’s automobile sales reached 11.55 million vehicles, a marginal increase of only 1.4% compared to the same period last year.
To seize market share, auto companies have started a price war this year. According to the China Passenger Car Market Information Joint Committee (PCA), from after the Chinese New Year in 2024 until the end of April, the number of car models participating in price reductions approached the total for the entire year of 2023, with some popular models seeing price cuts of nearly 20%. Recently, several key models from SAIC Volkswagen simultaneously announced price reductions, with the highest comprehensive discount reaching up to 59,000 yuan.
The intense price war among auto companies is narrowing the profit margins of both car manufacturers and supply chain companies. According to the PCA’s statistics, in the first five months of 2024, the profit margin for the automotive industry was 5.3%, lower than the average profit margin of 6.1% for industrial enterprises during the same period.
Although electric vehicle sales are growing rapidly in mainland China, profitability remains a significant challenge. According to a report by Caixin on July 13, only Tesla, BYD, and NIO are profitable electric vehicle companies. However, even NIO, which was profitable last year, turned into a loss in the first quarter of this year. In the first quarter, NIO incurred operating losses of 580 million yuan, and its free cash flow turned negative from 6.7 billion yuan in the same period of 2023 to negative 5.1 billion yuan.
Electric vehicles aside, traditional fuel vehicle companies are also facing challenging circumstances. PCA data shows that in the first half of 2024, retail sales of gasoline-powered passenger cars totaled 5.73 million, a 13% year-on-year decrease; in June, retail sales of gasoline cars reached 910,000, a 27% year-on-year decline.
On June 7, Li Shufu, Chairman of Geely Holding Group, publicly stated that the level of competition and internal strife in the Chinese automotive industry is the highest globally, with each wave of price war more intense than the previous. For any industry to achieve healthy development, it must realize better economic benefits in terms of input and output. Endless internal strife and aggressive price wars may lead the industry towards cutting corners, fraud, non-compliance, and disorderly competition.
Furthermore, in the annual “Global Automotive Market Outlook” released by the U.S. consulting firm AlixPartners on July 10, it was indicated that the number of Chinese electric vehicle brands may decrease from 137 in 2023 to 19 in 2030, representing a reduction of over 80%.
AlixPartners’ prediction is based on the fact that for an electric vehicle brand to survive, it needs to achieve annual sales of 400,000 pure electric vehicles or 200,000 plug-in hybrid electric vehicles. However, in 2023, the annual average sales volume of Chinese electric vehicle brands was only 156,000. By 2030, out of the current 137 electric vehicle brands, only 19 brands are expected to capture over 70% of the market share, with the remaining 118 brands having an average annual sales volume of 46,000 vehicles, making their commercial sustainability questionable.