Buy Now and Save! Price War Over Electric Cars Erupts in China.
A cutthroat price war has erupted in the world’s largest automobile market.
Within the span of a week in March, Volkswagen’s Chinese joint venture slashed prices on its ID.3 electric cars by 18 percent. Changan Automobile, one of China’s state-owned car manufacturers, offered $3,000 cash rebates, free charging credits and other incentives for its electric vehicles. BYD, the country’s biggest E.V. maker, unveiled a second round of markdowns in a month for some of its older models.
Amid slumping auto sales, car brands are going to extremes to stay competitive, offering dealership giveaways and deep discounts. Over 40 carmakers have discounted electric and gas-powered vehicles in China this year. The discounts have amounted to several hundred dollars for cheaper models, and tens of thousands of dollars for higher-end offerings.
“The severity of this cycle of price cuts is something that I’ve never seen,” said Tu Le, a managing director at the Beijing consultancy Sino Auto Insights, who has worked in the automotive industry in China and the United States for 25 years.
The price competition has unsettled what was a pillar of strength in the last few years, even as strict anti-pandemic measures shook China’s economy and undermined efforts by the ruling Chinese Communist Party to instill confidence.
China’s car sales fell 13 percent in the first three months of 2023. Sales of traditional automobiles plunged, while growth in electric vehicles slowed, according to the China Passenger Car Association.
China’s E.V. market has grown rapidly since 2020 — doubling in sales last year — propped up partly by government subsidies. When that program expired in December after 13 years, the competition intensified to attract buyers in an already crowded segment of the market.
At the same time, traditional automakers are scrambling to unload inventory of older cars before the implementation of tougher national emissions standards in July that will make it difficult to sell diesel- and gas-powered vehicles.
An already jittery market started to spiral in January when Tesla, the American company that makes electric vehicles in Shanghai, lowered prices in China for the second time in three months. Other manufacturers felt pressure to do the same.
This month, Wang Chuanfu, chairman and chief executive of BYD, proposed that the government extend tax exemptions, which reduce the cost of buying electric vehicles, to 2025, instead of allowing them to expire this year. And China’s Auto Dealers Chamber of Commerce published an article last month calling for a six-month delay in the implementation of the new emissions standards.
The price cuts are not limited to China. Tesla has also lowered prices in the United States and Europe, and its competitors have followed suit.
But the intensity of competition reflects the reality that China is not only the biggest market for electric vehicles, but also the most competitive.
Established domestic carmakers and local start-ups, supported by Beijing’s policies prioritizing growth of so-called new energy vehicles, flooded the sector, enticed by a once-in-a-generation opportunity to upend the balance of power in the car industry. By one measure, there are around 300 domestic E.V. manufacturers across China.
Didi, China’s leading ride-hailing service, has developed an electric car with BYD exclusively for its drivers. Xiaomi, a maker of smartphones, has said it plans to debut an electric car next year. Even Evergrande, the beleaguered property developer, was building electric vehicles, although those plans may be in jeopardy because of its debt woes.
China is the leading market for electric cars, and more were sold there last year than in the rest of the world combined. Foreign automakers see an urgent need to gain a foothold in China to develop the know-how and manufacturing scale necessary to compete globally.
Cui Dongshu, secretary general of the China Passenger Car Association, said the price war “will definitely continue” because of the importance of producing E.V.s in large quantities.
“In the end, companies with small sales, or poor technology will be easily eliminated,” Mr. Cui said.
Car companies and dealerships are now pulling out all the stops for customers. Some dealers are offering free vacations or bottles of perfume in exchange for test drives, while some eager sales teams are stalking charging stations in hopes of luring drivers away from the competition.
Last month, a promotional poster from a Toyota dealer in the southern city of Shenzhen generated buzz online. It advertised a free gas-powered sedan with the purchase of a bZ4X, the company’s electric sport utility vehicle. A woman who answered the phone at the dealership said there was currently no such deal.
Kevin Yang, 29, said he visited a Volkswagen dealer in Chengdu last month to look at its electric vehicles. He was struck by a sense of desperation among the sales people.
The salesman stayed well past the end of his work day to plead with him to take a test drive. After Mr. Yang agreed to take the car for a spin, he started receiving daily phone calls from the salesman with offers of lower prices if he was willing to return to the dealership.
“The rat race is really intense now,” Mr. Yang said.
There are similarities between the frothy E.V. market in China and the early days of the smartphone boom, when a new technology product attracted scores of upstarts to jostle with established foreign brands.
In 2015, there were more than 100 Chinese smartphone manufacturers — a number that has been whittled down significantly to four main domestic brands and Apple. Many non-Chinese brands such as Samsung Electronics, once a mobile phone leader in China, barely register.
Zhu Jiangming, chairman and chief executive of the Chinese E.V. maker Leapmotor, said he saw another similarity. He expects electric car prices to come down faster than traditional cars because, like smartphones, E.V. makers will benefit as the prices of components fall and features are improved.
It is possible, Mr. Zhu said, that an average to high-end electric vehicle in China could sell for around $7,000 in 10 years. The average price for an electric car in China is already significantly lower than in the rest of the world, around $35,000, compared with $60,000 in Europe and $70,000 in the United States.
William Li, chief executive of Nio, one of the top Chinese electric vehicle companies, said he planned to keep Nio out of the price war, which he called “unhealthy and unsustainable.” For traditional gas-powered automakers, “cutting prices is their last resort in trying to secure market share,” he said in a statement.
The fear among some executives is that consumers will become accustomed to waiting for price reductions. The China Automobile Dealers Association said last month that foot traffic to dealerships has soared after markdowns, but orders have decreased.
Leapmotor and Li Auto sought to assure potential buyers with a guarantee offering to make up the difference if the company lowered prices or offered cash rebates in the next 90 days.
Mr. Yang, the car shopper in Chengdu, said he expected prices to go even lower.
“I heard that there will be more discounts soon,” he said. “I’m going to wait a bit.”
Source: Read Full Article