Price wars in China: Profitability of electric vehicles under threat

Price war in China Profitable electric vehicles or struggle for survival

The Chinese electric vehicle market is experiencing a paradoxical situation: despite record sales, most manufacturers are losses due to fierce price competition. Only two companies - BYD and Li Auto - remain profitable in this difficult economic environment.

Electric vehicles in China

Dominance and losses

In China, electric cars have captured more than half of the new car market. However, these impressive statistics mask a troubling trend: the vast majority of electric vehicle manufacturers are operating at a loss.

Price war

The reason for this paradox lies in the ruthless price competition. Currently, only two players in the Chinese electric vehicle market are profitable: BYD and Li Auto. The remaining more than 30 electric car manufacturers are mired in financial losses.

Extent of losses

Three major manufacturers - Xpeng, Zeekr Intelligent Technology and Leapmotor - have already announced their financial results for the second quarter . Their total loss was an impressive 42.9 billion yuan (about $6 billion). Although this figure is a 20% decrease compared to the same period last year, it raises serious concerns about the future of the industry.

Expert opinion

David Zhang, Secretary General of the International Intelligent Vehicle Engineering Association, comments on the situation: “Time is against many companies , because they need to survive in a brutal price war, when financial resources dry up amid colossal losses, manufacturers will have to curtail their activities."

Xiaomi debuts

Even an electronics giant like Xiaomi, which successfully entered the electric vehicle market in March, admits that it will take time to achieve profitability in this new segment. This comes with huge development and marketing costs. The company's first model, SU7, became one of the biggest hits of the year.

Xiaomi sales statistics

Over the past quarter, Xiaomi sold 27,307 units of SU7 at a price starting from 215,900 yuan (about $30,300). At the same time, the loss on each car could reach 68,000 yuan (approximately $9,500) with a planned sales volume of 60 thousand units in 2024. In its financial report, Xiaomi announced its intention to deliver 120 thousand electric vehicles for the entire year.

Pricing strategy

To achieve sales targets, manufacturers are ready to reduce prices and attract potential buyers with discounts. They faced a difficult choice: either lose market share while maintaining prices, or sacrifice profits to increase sales volumes.

BYD pricing policy

In February, BYD, the world leader in the production of electric vehicles, reduced prices for almost the entire model range by 5 -20%. This caused a chain reaction: according to an April report from Goldman Sachs, prices for 50 models from various brands fell by an average of 10%.

Analysts' forecasts

According to experts, if BYD further reduces prices by another 7% (about $1,450) , this could lead to negative profitability for the entire Chinese electric vehicle industry this year.

Glossary

BYD is a Chinese automaker specializing in electric vehicles and batteries
Li Auto - Chinese manufacturer of premium electric vehicles and hybrids
Xpeng - Chinese company developing smart electric vehicles
Zeekr is a premium electric vehicle brand owned by Geely
Xiaomi is a Chinese tech giant that recently entered the electric vehicle market

Answers to questions

What is the situation with sales of electric vehicles in China?

Electric cars make up more than half of new car sales in China, but most manufacturers are suffering losses due to fierce price competition. Only BYD and Li Auto are making a profit, while the rest of the companies are operating in the red.

How are the major EV manufacturers doing?

Xpeng, Zeekr Intelligent Technology and Leapmotor reported a combined loss of 42.9 billion yuan for the second quarter. Even successful market debutant Xiaomi expects it will take time to achieve profitability due to high development and marketing costs.

What strategies do manufacturers use to increase sales?

Companies are lowering prices and offering discounts to attract customers. For example, BYD has reduced the cost of almost all of its models by 5-20%. This led to an overall reduction in prices on the market by an average of 10% for 50 models of different brands.

What challenges do electric vehicle manufacturers face in China?

The main dilemma is between maintaining market share by lowering prices and maintaining profitability. Many companies are at risk of exhausting their financial resources due to large losses in the face of fierce price competition.

What is the outlook for China's electric vehicle industry?

According to analysts at Goldman Sachs, if BYD cuts prices by another 7%, industry-wide profitability could turn negative. Experts warn that some manufacturers could face going out of business if they cannot cope with the financial difficulties of the price war.

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2024-08-26

The article examines the situation in the Chinese electric vehicle market, where only two companies out of more than 30 manufacturers are making a profit. The causes and consequences of fierce price competition in the industry are analyzed.

Zinaida Rumyantseva
Zinaida Rumyantseva Copywriter Elbuz

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