China’s EV industry has braced for the jolt as prices tumble

Amy Liu isn’t sure whether she should swap her five-year-old electric SUV for a newer model with a longer range or wait a little longer.

“If I place an order now, I’m afraid the price may drop next month,” the Shenzhen real estate agent said.

Automakers in China’s highly competitive market for new energy vehicles (NEVs), which include all-electric and hybrid models, have aggressively cut prices since late last year as demand has eased and the government has reduced subsidies.

Local players in the world’s largest electric vehicle market have sounded the alarm, predicting that the number of electric car makers in China will shrink from around 200 to 5-10 in the coming years. The shock is compounded by competition from foreign automakers. Volkswagen, BMW and Nissan all plan to introduce new electric models for China, where local EV makers account for nine of the top 10 by sales.

Buoyed by government policies to boost the emerging industry, about two-thirds of China’s existing EV manufacturers were registered between 2018 and 2020. Nio, Xpeng and Li Auto are among the poster boys competing with US Tesla in the midsize and premium segments. Others include national leader BYD, as well as subsidiaries of state-controlled automakers and independent brands.

Drivers in China have embraced electric — more than a quarter of all cars sold last year were NEVs — but experts say only EV makers with economies of scale and enough financial firepower will stick around. in the years to come.

“Those without a wealthy parent company will come under the most pressure, especially those without access to the stock market,” Jing Yang, director of Shanghai-based Fitch Ratings, told Nikkei Asia. “For independent EV manufacturers, we continue to think brand positioning and cost structure will make a difference.”

Some are already feeling the heat.

Zhejiang Leapmotor Technology is one of the EV start-up companies to be publicly traded recently. Over the past four years, Leapmotor had consecutive net losses that increased to RMB 5.1 billion ($734 million) in 2022, largely due to higher selling expenses.

“We will try to achieve a balance between sales volume and gross profit,” Chief Executive Officer Zhu Jiangming told local media in March. “We will prioritize gaining market share.”

Hong Kong-listed Leapmotor sold 111,168 vehicles in 2022, an annual growth of 154.1%. By comparison, Tesla delivered 711,000 vehicles in the same period. Leapmotor last month slashed the price of its flagship C01 sedan by a fifth to match rivals.

The price war extends to the lower segment. The Ballet Cat, an electric hatchback resembling the Volkswagen Beetle, is now selling for just Rmb 149,800 after a discount of around Rmb 50,000 to meet the “realities of the market,” a promoter said. The model is made under the Ora brand, one of several electric vehicle brands of state-owned Great Wall Motor, itself best known for producing pickup trucks.

It has now sold 103,996 vehicles in 2022, a decline of 23%.

Total new car sales in China grew just 2% last year, while NEV sales rose 93% to 6.88 million units, or 27% of all cars sold, as buyers they are rushed to capitalize on an EV subsidy deadline that year.

Driven in part by a decline in the cost of raw materials for batteries, Tesla began cutting prices in October. Other EV players soon followed suit, and makers of traditional gasoline-powered vehicles joined the fray as they tried to clean up inventory ahead of new emissions standards in China that go into effect on July 1.

“These moves have led to a feeling of anticipation and have not helped boost vehicle sales,” said Phate Zhang, founder of China automotive news outlet CnEVPost. Total vehicle sales decreased 6.7% in the first three months of this year, while NEV sales grew 26%, compared to 138% in the same period last year.

Even established EV startups are alarmed by intensifying competition.

“The elimination of players in the automotive sector has just begun,” said He Xiaopeng, chief executive officer of Xpeng, on April 16. “Players with annual sales of 3 million units will qualify. . . and only eight traditional players will remain over the next 10 years.

Xpeng, listed in New York and Hong Kong, delivered 120,757 vehicles in 2022.

A more established EV industry would apparently suit Beijing. The government warned in 2021 of the danger of having “too many players and [being] too dispersed” and stressed the need to create “big and strong” EV players.

But there have been few mergers and acquisitions in the sector, although some startups have thrown in the towel, such as Byton, which suspended operations in China in 2020. Nio was kept afloat after securing a lifeline from $1.4 billion from the Anhui provincial government in 2020.

“It’s the Chinese culture where entrepreneurs try to maintain the independence of their business rather than merge with other companies when they are struggling,” said CnEVPost’s Zhang.

The price war won’t go away anytime soon, analysts say, even as China’s economy has rebounded from three years of zero-Covid policy with a 4.5% annualized expansion in the first quarter. This growth was driven by consumption, particularly in the services sector, and by infrastructure spending.

“We are still concerned that in such a fiercely competitive environment, some leading players and emerging brands backed by major automakers may choose to price their products more aggressively to gain market share,” Fitch’s Yang said.

Demand was strong for plug-in hybrid vehicles based on first-quarter data, Yang added, and that would benefit players with such lineups, including state-owned auto groups.

For prospective buyers like Liu, however, the challenges facing the market could mean bigger savings.

“I’ll wait for the best deal,” said Liu, whose existing car has lost two-thirds of its value.

A version of this article it was first published by Nikkei Asia on May 5, 2023. It was later changed to correct for Leapmotor’s sales growth and Ora’s unit sales. ©2023 Nikkei Inc. All rights reserved.

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