A deadly price war has broken out in the largest car market in the world.
Within a week in March, Volkswagen’s Chinese joint venture slashed the prices of its ID.3 electric cars by 18 percent. Changan Automobile, one of China’s state-owned automakers, offered $3,000 cash rebates, free charging stations and other incentives for its electric vehicles. BYD, the country’s largest electric car maker, has announced a second round of price cuts for some of its older models in a month.
Amid declining car sales, car brands are going to great lengths to stay competitive, offering dealer giveaways and big discounts. More than 40 automakers have discounted electric and gasoline cars in China this year. The discounts amounted to several hundred dollars for cheaper models and tens of thousands of dollars for more expensive offerings.
“The severity of this cycle of price cuts is something I’ve never seen before,” said Tu Le, general manager of Beijing consulting firm Sino Auto Insights, who has worked in the auto industry in China and the United States for 25 years. .
Price competition has disrupted what has been a pillar of strength in recent years, even as strict anti-pandemic measures shook the Chinese economy and undermined efforts by the ruling Chinese Communist Party to build confidence.
According to the China Passenger Car Association, car sales in China fell 13 percent in the first three months of 2023. Traditional car sales plummeted, while electric vehicle growth slowed.
China’s electric car market has grown rapidly since 2020 – doubling sales last year – supported in part by government subsidies. When that program expired in December after 13 years, competition intensified to attract buyers in an already crowded market segment.
At the same time, traditional automakers are struggling to clear inventory of older cars before the stricter national emissions standards go into effect in July, which will make it difficult to sell diesel and gas vehicles.
An already jittery market began to squirm in January when Tesla, the US company that makes electric vehicles based in Shanghai, cut prices in China for the second time in three months. Other manufacturers felt the pressure to do the same.
This month Wang Chuanfu, chairman and CEO of BYD, proposed that the government extend tax exemptions, which reduce the cost of buying electric vehicles, until 2025, rather than 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 implementing the new emissions standards.
The price reductions are not limited to China. Tesla has also slashed 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 largest electric vehicle market, but also the most competitive.
Established domestic automakers and local start-ups, bolstered by Beijing’s policy of prioritizing the growth of so-called new energy vehicles, flooded the industry, seduced by a one-time opportunity to disrupt the balance of power in the auto industry. By one measure, there are about 300 domestic EV manufacturers across China.
Didi, China’s leading ride-hailing service, has developed an electric car with BYD exclusively for its drivers. Xiaomi, a smartphone maker, has said it plans to introduce an electric car next year. Even Evergrande, the beleaguered developer, was building electric vehicles, though those plans may be jeopardized by the debt problem.
China is the leading market for electric cars, with more sales last year than the rest of the world combined. Foreign automakers see an urgent need to gain a foothold in China to develop the know-how and scale of production needed to compete globally.
Cui Dongshu, secretary general of the China Passenger Car Association, said the price war “will definitely continue” due to the importance of producing electric cars in large quantities.
“Ultimately, companies with small sales or poor technology will be easily eliminated,” said Mr. Cui.
Car companies and dealers are now pulling out all the stops for customers. Some dealers offer free vacations or bottles of perfume in exchange for test drives, while some enthusiastic sales teams do stalk charging stations hoping to lure drivers away from the competition.
Last month, a promotional poster from a Toyota dealership in the southern city of Shenzhen caused quite a stir on the internet. It advertised a free gas-powered sedan with the purchase of a bZ4X, the company’s electric SUV. A woman who answered the phone at the dealer said there was currently no such deal.
Kevin Yang, 29, said he visited a Volkswagen dealership in Chengdu last month to see its electric vehicles. He was struck by a sense of desperation among the sellers.
The salesman stayed well past the end of his workday begging him to take it for a test drive. After agreeing to take the car for a ride, Mr. Yang received daily calls from the salesman offering offers for lower prices if he was willing to return to the dealership.
“The rat race is really intense right now,” Mr. Yang said.
There are similarities between China’s frothy EV market and the early days of the smartphone boom, when a new technology product attracted numerous upstarts to jostle with established foreign brands.
In 2015, there were more than 100 Chinese smartphone manufacturers – a number that has been significantly reduced to four major domestic brands and Apple. Many non-Chinese brands, such as Samsung Electronics, once the market leader in mobile phones in China, barely register.
Zhu Jiangming, chairman and CEO of Chinese EV maker Leapmotor, said he saw another match. He expects electric car prices to fall faster than traditional cars because, like smartphones, EV manufacturers will benefit as component prices fall and features improve.
It is possible, Mr. Zhu said, that a mid-range to high-end electric vehicle in China could sell for about $7,000 in 10 years. The average price for an electric car in China is already significantly lower than the rest of the world, at around $35,000, compared to $60,000 in Europe and $70,000 in the United States.
William Li, CEO of Nio, one of China’s largest electric vehicle manufacturers, said he intended to keep Nio out of the price war, which he called “unhealthy and unsustainable.” For traditional gas-powered automakers, “price reduction is their last resort to secure market share,” he said in a statement.
The fear among some executives is that consumers will become accustomed to waiting for price cuts. The China Automobile Dealers Association said last month that foot traffic to dealers has surged following price cuts, but orders have declined.
Leapmotor and Li Auto tried to reassure potential buyers with a warranty offer to make up the difference if the company lowered prices or offered cash discounts in the next 90 days.
Mr. Yang, the car buyer in Chengdu, said he expected prices to go even lower.
“I heard more discounts are coming soon,” he said. “I’ll wait a while.”
