2024-06-12 - tech

Price cuts, fighting, the automobile market starts the elimination round

The echoes of the New Year's start-up bell are still ringing in our ears, yet the automotive market's fluctuations have already surged like tidal waves.

Let's take a closer look at the turmoil that has taken place in the automotive market shortly after the beginning of 2024.

01

Initial Turmoil

Firstly, there was the price war in the automotive industry that caused a sensation at the start of the year.

On February 19th, the launch of the Qin PLUS Glory Edition under the Dynasty Network was like a stone thrown into a lake, causing ripples in the market. The official guide price of this car starts at 79,800 yuan, a price positioning that undoubtedly attracted a lot of consumer attention for the Qin PLUS Glory Edition. Its emergence not only infused new vitality into the Dynasty Network but also brought a new competitive landscape to the entire compact sedan market.

However, at the same time as the Qin PLUS Glory Edition's launch, the price-cutting strategies of other car manufacturers became even more intense. Wuling, Changan Automobile, Nio, Beijing Hyundai, SAIC General Motors, and others joined the price war, collectively announcing significant price reductions on multiple models. This undoubtedly provided consumers with more choices but also put greater pressure on the car manufacturers.

Among them, the Nio X series saw the highest direct price drop of 22,000 yuan, the Nio AYA series was reduced by 8,000 yuan, and the Nio S series was reduced by 5,000 yuan. In addition, Nio introduced a value retention exchange policy, where from now until March 31, 2024, buyers of the Nio S and Nio GT models can enjoy the right to exchange for any new Nio car within two years at 70% of the purchase price.

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The price of the Wuling Starlight PLUS 150km Advanced Edition model was also significantly reduced from the previous 105,800 yuan to 99,800 yuan, aligning with the price of the BYD Destroyer 05 120km version.

Beijing Hyundai's A-class sedan, the Elantra model, officially reduced its price, starting from 75,800 yuan. Furthermore, Buick, a brand under SAIC General Motors, announced that from February 19th to 29th, it would offer price reductions or subsidies on some models. Among them, the Buick LaCrosse, Verano Pro, and Encore Plus offer individual car discounts and exchange subsidies of 35,000, 55,000, and 65,000 yuan, respectively.The ripples of the price reduction wave have yet to subside, and the news of HiPhi's suspension of production has plunged the market into a new round of speculation and discussion. As a company with some accumulation in the field of new energy vehicles, HiPhi's decision has raised more questions about the future development of the new energy vehicle market. The decision by AITO to outsource after-sales services inevitably raises the question: against the backdrop of new forces vigorously opening direct stores, and even traditional car manufacturers beginning to sell and service new energy models through direct sales models, how could AITO choose this moment to revert to the traditional path of dealer-managed after-sales?

Undoubtedly, times are changing, and the automotive market is entering an era of great competition. This information can also be inferred from the sales data of the automotive market over the past three years.

02

Continuous Growth in Automobile Sales for Three Consecutive Years

Thanks to policy support and the coordination of promotional activities at various auto shows, the overall sales situation in the Chinese automotive market in 2023 remains robust.

According to data from the China Association of Automobile Manufacturers, in 2023, the production and sales of automobiles in China reached 30.161 million and 30.094 million units, respectively, representing year-on-year increases of 11.6% and 12%.

This marks the first time since 2017 that China's automobile sales have exceeded the historical high of 28.88 million units, greatly boosting industry confidence. Looking back, in 2009, China's automobile production and sales first broke through the 10 million unit milestone, becoming the world's leading country in automobile production and sales, and since then, it has been unstoppable. In 2013, it broke through 20 million units, and by 2017, production and sales reached a phase peak. However, the market then declined for three consecutive years, entering a period of transformation and adjustment, with the "three consecutive declines" only ending in 2021 and beginning to rise.

According to Chen Shihua, Deputy Secretary-General of the China Association of Automobile Manufacturers, in 2023, the production and sales of passenger cars in China reached 26.124 million and 26.063 million units, respectively, with year-on-year increases of 9.6% and 10.6%, respectively; the production and sales of commercial vehicles reached 4.037 million and 4.031 million units, respectively, with year-on-year increases of 26.8% and 22.1%. The overall market sales in 2023 showed a characteristic of "starting low and ending high, gradually improving."

It is worth mentioning that in 2021, China's automobile production and sales were 26.082 million and 26.275 million units, respectively, with year-on-year increases of 3.4% and 3.8%, respectively, ending the trend of three consecutive years of decline. In 2022, China's automobile production and sales completed 27.021 million and 26.864 million units, respectively, with year-on-year increases of 3.4% and 2.1%, respectively, achieving a slight increase for the year. China's total automobile production and sales have been the highest in the world for 14 consecutive years.However, while the overall automotive market is showing positive trends, the sub-segments are presenting a different picture.

On one hand, the traditional fuel vehicle market, although still substantial, has seen a slowdown in growth, with some sub-segments even experiencing a downward trend. This is primarily due to a gradual shift in consumer attitudes towards fuel vehicles and the impact of the new energy vehicle market. On the other hand, the new energy vehicle market has emerged as a new favorite, offering a diverse range of options from electric vehicles to hybrid and hydrogen fuel cell vehicles.

When it comes to the performance of individual automakers, there is a mix of success and struggle. Under the dual pressures of price reductions and market competition, some automakers have managed to attract consumer attention with excellent product quality and innovative marketing strategies, achieving steady sales growth. Naturally, there are also automakers facing challenges amidst market changes. Confronted with fierce market competition and evolving consumer demands, they are grappling with issues such as slow product updates and inadequate sales channels, with some even quietly exiting the market.

The following text will provide an in-depth analysis of a series of transformations in the automotive market, revealing the underlying trends and impacts.

03

Overall Market Uptrend, Sub-segment Shifts

Electric Advances, Fuel Recedes

The first major transformation in the automotive market is the rapid expansion of the new energy vehicle market, with the fuel vehicle market being squeezed.

According to data from the China Association of Automobile Manufacturers, in 2023, the production and sales of new energy vehicles in China reached 9.587 million and 9.495 million units, respectively, with year-on-year increases of 35.8% and 37.9%, accounting for a market share of 31.6%. Among the main types of new energy vehicles, compared to the previous year, the production and sales of all three major categories of new energy vehicles showed significant growth.

In 2022, the production and sales of new energy vehicles in China reached 7.058 million and 6.887 million units, respectively, with year-on-year increases of 96.9% and 93.4%, and a market share of 25.6%, indicating that new energy vehicles are gradually entering a comprehensive market expansion phase.New energy vehicles were the biggest highlight of the automotive market in 2021, with annual production and sales volumes reaching 3.545 million and 3.521 million units, respectively, raising the market share of new energy vehicles to 13.4% in 2021.

In terms of fuel vehicles, as the market scale of new energy vehicles continues to expand, the sales situation of traditional fuel vehicles has been significantly affected. Especially in the just-passed 2023, the trend of "oil retreating and electricity advancing" has become increasingly evident. The total car sales volume in 2023 increased by more than 3 million units compared to 2021, but the sales volume of fuel vehicles in 2023 was more than 2 million units less than in 2021.

In terms of products, the number of new fuel vehicle models has continued to decrease in recent years, with the iteration speed becoming slower and slower — 59 models in 2020, 56 models in both 2021 and 2022, and only 27 models in 2023. In stark contrast, new energy vehicle models are being rapidly and continuously rolled out.

The competition among new energy vehicles has begun.

In 2023, with new car manufacturers such as Xiaomi joining the ranks and launching new products, and companies like Xpeng Motors, Tesla, and NIO also planning to introduce lower-priced products or brands, it is expected that the competition in the new energy vehicle market will further intensify. Under these circumstances, new energy vehicle manufacturers have the urge to trade price for market share, which led to the widespread price cuts mentioned in the first part of the article.

The price war ignited at the beginning of the year is undoubtedly a clear reflection of the intensification of internal competition within the new energy vehicle industry. With technological advancements, industry chain integration, and the effects of scaled production becoming apparent, the new energy vehicle industry, which once relied on policy subsidies for survival, has been transformed and now has the strength to compete with traditional fuel vehicles on cost. It is important to note that the overall market growth is not abundant, which means that competition among car manufacturers will be even more fierce. To achieve higher growth, manufacturers must strive to "grab" it.

The following are the achievements and situations of some mainstream car manufacturers in 2023.

The mainstream new energy vehicle manufacturers in China include BYD, NIO, Li Auto, Xpeng Motors, Zero Run, and NIO, as well as some traditional car manufacturers in the process of transformation, including GAC Aion, SAIC Motor, Changan, Great Wall, and Geely.First, let's look at BYD. In the full year of 2023, BYD's cumulative sales reached 3.02 million new vehicles, a year-on-year increase of 61.9%. Maintaining such growth at this scale is truly commendable. As a result, BYD has also become one of the few car manufacturers to achieve its annual sales target.

Next, let's examine the new forces in car manufacturing, such as NIO, Li Auto, and XPeng. In 2023, NIO delivered a total of 160,000 new vehicles, a year-on-year increase of 30.7%; Li Auto's annual delivery volume reached 376,000, a year-on-year increase of 182.2%. In 2023, XPeng Motors delivered a total of 141,600 vehicles, failing to meet its sales target of 200,000 units. Zero Run and Nio delivered 144,000 and 127,000 vehicles respectively in 2023. AITO's sales volume in 2023 was 90,000 units.

In terms of new energy vehicles, SAIC officially released a three-year action plan for the development of new energy vehicles in 2023, pressing the accelerator for the transition to a new track. In 2023, SAIC Group sold 1.123 million new energy vehicles throughout the year, a year-on-year increase of 4.6%, ranking second in domestic car manufacturers in terms of sales volume. GAC Group's cumulative sales of new energy vehicles reached 549,600 units, a year-on-year increase of 77.55%. Geely's new energy vehicles sold a total of 487,000 units throughout the year, a year-on-year increase of more than 48%.

Behind the seemingly bright exterior, many car manufacturers are actually under pressure to operate at a loss. In the third quarter of 2023, NIO reported a loss of 4.56 billion yuan, and XPeng reported a loss of 3.89 billion yuan, with XPeng's loss increasing compared to the first and second quarters. Zeekr, which only sold 118,700 units, reported a loss of 7.655 billion yuan in 2022. Zero Run reported a loss of 5.1 billion yuan in 2022 and a loss of 2.276 billion yuan in the first three quarters of 2023. There is also the previously mentioned high-end brand that has ceased production.

Even Tesla's sales growth in China has lost the momentum of previous years. Official data shows that from 2021 to 2023, Tesla's sales in the Chinese market were 320,700 units, 439,800 units, and 603,700 units, respectively, with year-on-year growth of 133%, 37.1%, and 37.3%. In January 2024, Tesla's sales in China were only 71,400 units, with the year-on-year growth rate further decreasing to 8%.

In the new energy sector, capital was once abundant, making it easy to secure investments. However, as capital begins to recede, these already publicly listed car manufacturers are starting to struggle, let alone those that have not yet gone public and only sell dozens or even a few units a month. Small companies backed by large traditional car manufacturers are not necessarily safe either, as in the turbulent market, the parent company may not hesitate to cut its losses to survive.

It is evident that the current new energy vehicle market is a true reflection of a mixed bag of joy and sorrow. Some car manufacturers on the brink of collapse have already been caught up in negative public opinion whirlpools such as "layoffs" and "production halts," facing the risk of being eliminated in the brutal competition. The new energy vehicle market may usher in a new round of reshuffling in 2024.

04

The elimination round has already begun

The price reduction at the beginning of the year was just the first shot fired in the competition between new energy vehicles and traditional fuel vehicles.Observations have revealed that this round of price cuts is collectively targeting the market segment below 100,000 yuan. This signifies that independently produced new energy vehicles (NEVs) are officially launching a strong challenge towards the segment traditionally dominated by joint venture fuel vehicles.

In the domestic automotive market, the A-class car market around 100,000 yuan has always held a significant market share, being a "must-contest" territory for car manufacturers. However, due to the high costs of NEVs, the majority of this segment has long been occupied by joint venture fuel vehicles, with models like the Nissan Sylphy, Volkswagen Lavida, and Volkswagen Sagitar being bestsellers in this market.

Now, as the market cost of NEVs continues to decrease, the competition between NEVs and traditional fuel vehicles is becoming increasingly fierce. At the same time, new entrants in the automotive industry are constantly introducing new products, intensifying the competitive replacement between established and emerging manufacturers.

In fact, the elimination round of the automotive market has already begun.

For instance, Mitsubishi Motors, which has already exited the Chinese market; Toyota Motor Corporation, facing the dilemma of production reduction; and in addition to Toyota, Mazda, Subaru, and Infiniti are also under immense pressure. Skoda, a subsidiary of the Volkswagen Group, currently has relatively low sales. Hyundai and Kia, under the Hyundai Motor Group, are also not performing well in the Chinese market. Beyond these, there are also some local small and medium-sized enterprises that have closed or suspended production due to various unfavorable factors in this battle.

Yu Chengdong, CEO of Huawei's Intelligent Automotive Solution Business Unit, once stated that by 2030, the sales proportion of NEVs in new car sales will approach 100%, and the number of NEV companies will decrease, with the main players in the Chinese market numbering less than five.

Li Xiang, CEO of Li Auto, believes that the Chinese smart electric vehicle market will reach an inflection point by 2025, and Li Auto must capture at least 20% of the market share to have a chance at securing a ticket for the next round of competition.

Lin Jinwen, Vice President of Ji Krypton Intelligent Technology, stated: "The price war is not just this year, but it is particularly intense this year. As long as there are enough players, the industry will be sufficiently competitive, to the point where the number of players gradually decreases. In the next 2-3 years, competition will be the norm, and all products and brands participating in the competition that cannot compete or afford to compete will be quickly eliminated."

As the tide of competition recedes, which car manufacturers will have the capability to remain, we will have to wait and see.