Chinese carmakers resist Beijing’s call to end brutal price war

[HONG KONG] China’s campaign to stamp out a ferocious electric vehicle (EV) price war seems to be having a limited effect, with all of the nation’s top 20 auto brands either keeping discounts intact, deepening them or only slightly reducing them in July.

With carmakers still grappling with overcapacity and lacklustre consumer sentiment, seven brands offered bigger discounts despite Beijing’s plea in June to avoid “rat-race competition”, data from China Auto Market show. The others either reduced their discounts a little bit or kept them unchanged. The level of promotions last month was higher than a year earlier.

Such a muted response to the government’s pledge to curb aggressive price competition across the country, with a particular focus on EVs, shows how difficult it’s going to be to actually control behaviour in the ultra-competitive market. Established manufacturers such as BYD and Tesla are dealing with the sudden rise of new entrants such as tech giant Xiaomi, while automakers including Nio and Xpeng are releasing new models in a drive to win share.

At BYD, the nation’s top-selling carmaker whose sweeping discounts in late May helped spur the increased scrutiny from Beijing, the difference was negligible. The average discount, measured by the margin between a car’s final sale price and its suggested sticker price, dipped only slightly to 7.5 per cent last month from 7.9 per cent in June, the data show.

“It could be tough to regulate retail pricing,” Bloomberg Intelligence auto analyst Joanna Chen wrote in a note earlier this month. “Automakers are likely to refrain from announcing direct cuts to sticker prices but there are other promotions available.”

Manufacturers can use perks such as interest-free financing, complimentary home chargers, cabin upgrades such as premium seats, and free data for in-car connectivity to attract buyers without directly cutting sticker prices, Chen said.

At BYD, average sale prices also continued to decline in July, falling to 114,760 yuan (S$20,616) from 116,200 yuan, the data show. The drop could also indicate buyers’ preference for cheaper models.

Geely Automobile Holdings experienced a similar trend, with average sale prices decreasing to 104,300 yuan from 105,700 yuan in June, according to China Auto Market.  

BYD is scheduled to report first-half earnings on Aug 29, and analysts will be looking at how the authorities’ directive to rein in the price war may have impacted its bottom line and deliveries. They will also watch closely for guidance on whether the world’s No 1 seller of EVs can achieve its goal of delivering 5.5 million vehicles in 2025, having delivered around 2.49 million units in the first seven months.

Foreign automakers in China, at least, appear to be taking more heed.

Average sales prices for European luxury brands Mercedes-Benz, BMW and Audi all rose in July, possibly due to the government ordering banks to stop auto loan partnerships that paid generous commissions to dealers. Many sellers of high-end vehicles took advantage of the kick-backs to pass on discounts to buyers, exacerbating the price war.

Domestic EV maker Zhejiang Leapmotor Technology said recently that while the government’s campaign is beneficial for the industry, it will not affect its pricing tactics.

“In terms of our strategy, it doesn’t change anything because we bring product to the market with very good features and very good value to our target consumers,” Leapmotor co-president Michael Wu said. “We will also continue to drive down the cost by leveraging what we do best, which is having a vertically integrated business model.”

Xpeng president Brian Gu, meanwhile, said Beijing’s crackdown was more focused on volume players. “It doesn’t take away the government’s effort to encourage long-term innovation focused on quality and building a better ecosystem,” he said.

Li Yanwei, an advisor to the China Automobile Dealers Association, also said that Beijing needs to play the long game and noted that any move to limit price competition will take time.

“I think prices won’t go down further in the future, but it’s very difficult for them to go up as well,” Li said. BLOOMBERG