BEIJING – China’s largest auto show over the past two weeks exhibited the latest that the world’s largest electric vehicle (EV) market has to offer. But on display was also the intense competition in this growing yet overcrowded industry.
The Beijing International Automotive Exhibition opened on April 25 with the chairman of smartphone giant and EV newcomer Xiaomi ribbing his rivals for “rolling out all sorts of policies to intercept our orders”.
And over the course of the next nine days, carmakers that showcased a record 278 new energy vehicles (NEVs) there sought to outdo one another with freebies and jazzed-up vehicles.
It was a microcosm of the industry-wide tussle that has seen companies slash prices, swallow losses and upgrade their technologies to fight for a share of the market.
This competition is expected to heat up further, with one NEV honcho forecasting a looming “bloodbath”. NEV is a term used in China to describe vehicles powered by energy sources apart from fossil fuels – including but not limited to pure battery-electric cars and plug-in hybrids.
Only a fraction of the country’s nearly 200 NEV makers will survive after the industry matures, analysts say.
Price wars
NEV makers are currently focused on expanding or retaining their market share, and are doing so by cutting prices and offering promotions, said Mr Zhang Hong, secretary-general of the China Automobile Dealers Association’s electric vehicle chapter.
The competition is particularly fierce among mid- to low-end passenger cars priced under 200,000 yuan (S$38,000), he told The Straits Times.
Amid a price war as companies strive to boost sales, “companies’ profits from car sales are meagre, and some even incur larger deficits the more that they sell”, he said.
The adoption of NEVs has been on an upward trajectory – reaching 8.1 million new registrations in 2023 – as government subsidies, tax incentives and intense competition make such vehicles more affordable.
NEV sales surpassed that of traditional cars for the first time in the first half of April. Later that month, the government rolled out new subsidies of as much as 10,000 yuan to encourage consumers to replace their old cars with NEVs.
In 2024, over 10 brands – including industry leaders BYD and Tesla – have introduced price cuts, cheaper versions of existing models and limited-time discounts that shave up to 60,000 yuan off their sticker tags.
“Apart from Tesla, everyone is losing money,” said Xiaomi’s chairman Lei Jun on April 28, describing to state broadcaster CCTV how makers of pure battery-electric sedans like himself were selling cars at a loss.
Xiaomi’s SU7, a sporty sedan pegged as a competitor to Tesla’s Model 3 and Porsche’s electric Taycan, went on sale in late March with prices beginning at 215,900 yuan – undercutting the Model 3 by 12 per cent.
Mr Lei hopes that the SU7 will turn in profits in the next year or two, but says that this will hinge on achieving a sizable volume of annual sales.
The price wars, while painful for NEV makers’ bottom lines, are not all bad news.
“Competition that brings down the price of EVs will ultimately benefit consumers,” said Mr Fu Xing, 25, a car engineer at Mercedes-Benz who was browsing the auto show in his private capacity.
Another visitor at the auto show, a 28-year-old IT programmer who wanted to be known only as Mr Zhao, believes this competition will also eliminate weaker companies, “which is good for the overall development of the industry”.
In and out of business
Despite the challenges, China’s NEV market – which saw almost 60 per cent of the world’s new EV registrations in 2023 – remains the holy grail for many manufacturers.
China had 198 NEV manufacturers registered as at December 2023, said Mr Zhang from the automobile dealers association.
But the top 10 manufacturers by sales volume in 2023 held 73.4 per cent of the market share – with the bulk of this, or 32.7 per cent, belonging to BYD.
Only nine NEV makers had more than 2 per cent in market share in 2023, according to sales figures published by Ways Information Technology, a Guangzhou-based automotive data analytics firm.
Automakers have been trading short-term profitability for brand recognition and a higher sales volume, in the hopes that this will translate to a larger market share that can sustain their businesses in the longer term.
Already, a number of previously prominent start-ups have run into financial problems.
WM Motor, which was backed by tech companies Baidu and Tencent, filed for a pre-restructuring process in 2023. The company, which was established in 2015, faced poor sales and thereby a liquidity crunch.
And Aiways, whose investors included Tencent, ride-hailing company Didi and battery giant CATL, halted production in 2023 amid weak sales and trouble turning in profits. The company, which was founded in 2017, is now reportedly working to resume production, with a focus on export markets.
Mr Zhang estimates that when the dust settles, just 20 to 25 of China’s NEV manufacturers will remain.
Developing overseas markets
With profits increasingly difficult to come by in the highly competitive Chinese market, the country’s NEV makers have also set their sights abroad.
In foreign markets where the NEV scene is less crowded, Chinese manufacturers can afford to price their cars more profitably, even if sales volumes lag what many can achieve at home.
Industry bigwig BYD profits as much as 10 times more from every unit of sales in the EU than in China, according to an April report by the US-based research firm Rhodium Group.
The carmaker earns €14,300 (S$20,800) in profits from every plug-in hybrid sport utility vehicle sold in the EU, compared with €1,300 in China, the report found.
Correspondingly, China’s NEV exports have surged year on year to become one of China’s “new three” export pillars, along with solar cells and lithium-ion batteries.
In 2023, China exported 1.2 million NEVs, up 77.6 per cent from the previous year, according to data from the China Association of Automobile Manufacturers.
But this approach is facing headwinds, with concerns in other countries that China’s NEV “overcapacity” could flood their markets with cheap goods that disadvantage local producers.
In 2023, the EU launched an anti-subsidy probe into Chinese electric vehicles that could lead to the bloc imposing additional tariffs on such imports from China. The EU currently imposes a 10 per cent import duty on imported cars.
And the US in February announced an investigation into whether Chinese vehicles, including NEVs, posed national security risks, a move that could lead to more trade barriers. The US already imposes a 27.5 per cent tariff on Chinese-made cars.
Europe and the US are the world’s second- and third-largest NEV markets after China, with these three markets accounting for nearly 95 per cent of global NEV sales in 2023, according to the International Energy Agency.
The race to stand out
Ultimately, analysts say that for Chinese NEV makers to remain viable amid the intensifying competition, innovation is key.
Companies have to increase research and development in areas such as battery technology and electronic control systems, cut costs, and differentiate their products through a strong marketing strategy, said Mr Hong Qianjin, a fellow at Chinese market research institute Zero Power Intelligence.
At the recently concluded Beijing auto show, Chinese NEV makers demonstrated how they were trying to carve out a niche for themselves in this regard.
State-owned GAC Group began sales of its Trumpchi E9, a plug-in hybrid that features a passenger seat which doubles as a detachable electric wheelchair.
Zeekr, a premium brand owned by Geely, showcased a concept car which has front seats that can rotate to face the passenger seats – transforming the vehicle’s interior into a recreational and dining area that can be used on road trips, for example.
And others are looking to distinguish themselves with software, including through autonomous driving capabilities aided by artificial intelligence (AI).
One such manufacturer is the Guangzhou-based and Volkswagen-backed XPeng, which will reportedly spend 3.5 billion yuan in 2024 on the research and development of AI technologies centred on intelligent driving.
“This year, Chinese car brands will enter the first year of a ‘bloodbath’ in competition – or an elimination series”, the company’s chief executive He Xiaopeng said in a February internal memo to his staff.
All eyes will be on what this means for an industry prized in China as a hallmark of its manufacturing prowess.
