In recent years, the Chinese automotive industry has witnessed a significant trend of “internal rolling,” with car manufacturers slashing prices drastically and witnessing the emergence of “zero-kilometer used cars” in the market. Experts believe that Chinese car companies are willingly descending into this practice of market dominance through deceit, which is unsustainable in the long run and could lead to a breakdown in the financial chain, similar to the fate of the Chinese real estate industry collapse and debt defaults.
China’s leading electric vehicle company, BYD, announced a mid-year promotion named “618” on May 23, offering discounts ranging from 10% to 34% on 22 smart driving models under the label of “limited-time subsidies” to be sold at reduced prices until June 30.
This marked the third wave of price reductions by BYD this year. Starting from the end of March, BYD has been continuously engaging in promotional activities for three months by offering subsidies from the manufacturer and cash incentives in an effort to increase sales figures.
In response to BYD’s “price war,” other car manufacturers have followed suit, with companies like Geely and SAIC-GM also launching “limited-time subsidies” promotion to attract customers.
The intense bargaining competition has once again raised concerns and reflections on the severe “internal rolling” within the Chinese automotive industry.
Sun Guoxiang, a professor at the International Affairs and Business Department of South China University, pointed out that the primary reason for the internal rolling of Chinese car companies is the government’s recent policies on new energy vehicles and industrial guidance, leading to overcapacity and market saturation in the automotive industry, resulting in “an oversupply with increasing competition.”
Moreover, Sun believes that Chinese car companies are under pressure from capital and market valuations, and are inclined to increase sales volume and market share rapidly, even at the expense of profits. Many electric vehicle brands still lack mature core technologies, which forces them to focus on price and promotion strategies for competition.
Tian Xie, a professor at the USC Darla Moore School of Business, described China’s electric vehicle development as a “leap forward,” which inevitably leads to fierce competition.
He emphasized that the electric vehicle industry in China saw over 250 manufacturers rushing into the market without fully resolving issues regarding technology, safety, and quality, driven by the desire to take advantage of state subsidies. This aggressive approach has resulted in intense and cutthroat competition, ultimately leading to a harsh reality of fierce competition.
Tian Xie highlighted that the so-called “new productive forces” supported by the Chinese Communist Party have essentially failed, and the electric vehicle industry in China may face a similar fate.
Amidst the intense competition in the Chinese automotive market, there has been a phenomenon of “zero-kilometer used cars” emerging in the market.
Wei Jianjun, the chairman of Great Wall Motors, revealed in a media interview on May 23 the deceptive practice behind the “zero-kilometer used cars,” where new cars are sold as used vehicles in the second-hand market after receiving license plates.
Wei stated that some car manufacturers engage in this practice to boost sales figures and improve capital market performance, masking real inventory backlog and financial pressures. He cautioned that the conduct of “zero-kilometer used cars” not only disrupts market order but also poses quality risks to consumers.
Sun Guoxiang pointed out that the practice of “zero-kilometer used cars” conceals real sales figures as manufacturers transfer stock vehicles to the second-hand market under the guise of used cars, primarily a financial tactic of fake performance and beautified inventory reports, which carry significant risks.
Tian Xie mentioned that Chinese electric vehicle companies, including BYD, resort to selling new cars as “used cars” when exporting to Europe, as they do not meet stringent European automotive safety standards and inspection requirements. This paradoxical move allows their new cars to enter the European market under the pretense of being used vehicles.
Tian Xie criticized this practice as absurd, as Chinese car companies indeed sell new cars as used vehicles to bypass rigorous safety checks in Europe, ultimately resorting to deceitful means to penetrate the European market.
He asserted that the practice of “zero-kilometer used cars” has become a cancerous growth and an unwritten rule within the Chinese automotive industry, showcasing the severity of internal rolling where Chinese car companies are resorting to any means necessary.
Wei Jianjun also issued a warning during the interview, suggesting that a “Evergrande” scenario has emerged in the Chinese automotive industry, which is simply waiting to explode.
Evergrande was once a leading real estate company in China that faced a massive debt crisis of 2.4 trillion RMB in September 2021 due to overexpansion and a breakdown in the financial chain. Following this, the company’s chairman Xu Jiayin was arrested, leaving behind unfinished developments across the country and countless families with unfulfilled property investments.
Sun Guoxiang expressed concerns that the Chinese automobile industry might face the risk of “Evergrande-ization” or “real estate-ization” in a latent manner.
He warned that although the automobile industry does not directly impact the overall financial and local fiscal structure like the housing market, the characteristics of the industry, such as capital chains, consumer finance subsidies, and dependencies, make it susceptible to localized bubbles. If regulation fails or trust collapses, there could be considerable negative impacts, causing some car companies to fold, second-hand car prices to plummet, and the dealership network to collapse.
Tian Xie also commented that similar to real estate firms building numerous houses with heavy borrowing that they fail to sell resulting in a debt crisis, the current path of car companies in China follows a similar trajectory.
He pointed out that Chinese car companies rely on subsidies and financing to survive. If new car prices continue to drop, the cash flow, fund flow, and income of the companies will decrease, making it impossible to achieve profits, leading to significant losses. The more they produce and sell cars, the greater the losses—a strategy that is unsustainable in the long run.
“Blind expansion, excessive leveraging, debt accumulation, and stagnant product sales are on the same path as the Evergrande downfall. Therefore, the demise of car companies is inevitable,” Tian Xie concluded.
Observing the rampant “internal rolling” within the Chinese automotive industry, particularly in the electric vehicle market, the Chinese State Council’s Anti-Monopoly and Anti-Unfair Competition Committee convened an expert consultation on May 21, calling for the crackdown on “internal rolling competition” to maintain a fair market order.
Sun Guoxiang noted that the crackdown on “internal rolling competition,” as requested by the Chinese government, targets current issues such as pricing wars, excessive subsidies, and falsified sales data, which could potentially “reduce vicious price competition” in the short term but may lead to more adverse effects in the long run.
He stated, “These policies may significantly impact certain car companies that rely on subsidies to boost market share and use falsified reports for financing, leading to the breakdown of capital chains or speeding up market exits.”
Tian Xie bluntly criticized the Chinese government’s assertion of “anti-monopoly and anti-unfair competition,” deeming it a farce. He argued that both the economic and political systems in China fundamentally thrive on monopolies and unfair practices.
“The Chinese Communist Party monopolizes power and engages in unfair competition. On the economic front, it maintains monopolistic state enterprises, utilizes nepotism for unfair competition, and places its people strategically. The notion of ‘anti-monopoly’ and ‘anti-unfair competition’ in China is a joke,” Tian Xie asserted.
“To truly combat monopolies and unfair practices, one must first oppose the Communist Party. Therefore, it is destined to fail.”
Regarding the opinion that lowered car prices in the Chinese market allow ordinary people to buy cars at a cheaper rate, Tian Xie expressed his disbelief, stating that Chinese electric vehicles, no matter how cheap, are not worth purchasing due to being fundamentally flawed and of inferior quality.