In 2024, the battle for market share in the automotive industry has become even more fierce than the year before. According to Cui Dongshu, the Secretary-General of the China Passenger Car Association, while the national passenger car market has typically seen a promotional growth of about 4 percentage points higher than the previous year-end in the past few years, the competition in 2024 has been particularly intense. Especially for new energy vehicles, the peak of promotions has risen significantly by 7 points, creating a new normal of price reductions.
Despite an increase in sales, the substantial discounts have become a norm, with car companies selling at a loss. In the performance announcements released by various car companies, the impact of the price war was mentioned without exception. In fact, the impact of the price war is far more extensive, causing market chaos in new cars, the near-collapse of the second-hand car market, longer payment cycles for suppliers, and turmoil throughout the industry chain.
“Competing on price is not a problem; it is determined by supply and demand and market rules. However, it must be rational and have a bottom line. It is acceptable to offer discounts, but not at the expense of sustainability,” said Zeng Qinghong, Chairman of GAC Group, at the 2024 China Auto Chongqing Forum. He emphasized that without profitability, companies cannot survive, and the adverse effects on taxes, employment, and the entire industry chain are significant.
Li Shufu, Chairman of Geely Group, also believes that endless internal competition and crude price wars lead to cutting corners, counterfeiting, and disorderly competition that is not compliant with regulations.
In recent years, several emerging brands, domestic brands, and joint ventures have fallen into difficulties and declared bankruptcy, turning the “pain of internal competition” into a “tragedy of internal competition.”
Zeng Qinghong believes that the purpose of a company is to make a profit and contribute to the country. There should be a long-term perspective rather than focusing on short-term competition. Without profitability, companies cannot survive. The profit issue mentioned by Zeng Qinghong is also a dilemma faced by most car companies and the automotive industry today. GAC Group recently disclosed its first-quarter report, showing a decline in both revenue and net profit attributable to shareholders of the listed company year-on-year. GAC Group stated that the decline in net profit is closely related to the price war.
In addition to GAC Group, Changan Automobile’s net profit decline in the first quarter of this year is also quite obvious. According to a research report by Minsheng Securities, the average unit price of Changan Automobile in the first quarter was 76,000 yuan, a year-on-year decrease of 11,000 yuan, and a sequential decrease of 27,000 yuan; the gross profit margin was 14.4%, a year-on-year decrease of 4.1%, and a sequential decrease of 5.1%, mainly due to intense price competition and increased promotional efforts by the company.
The decline in net profit of car companies is not optimistic for the entire automotive industry’s profit margin. Data from the China Passenger Car Association shows that the profit margin of the automotive industry in April was 4.6%, which is still lower than the average profit margin of 5% for the entire industrial enterprise, indicating that the automotive industry is still relatively low. According to previously released data from the National Bureau of Statistics, in the past three years (2021-2023), the profit margin of China’s automotive industry was 6.1%, 5.7%, and 5%, respectively.
The person in charge of the China Automobile Manufacturers Association stated that at this stage, while the revenue of the Chinese automotive industry is increasing, the profit is decreasing. The ongoing price war poses a challenge to the profitability of car companies, and downstream suppliers are also affected. The survival dilemma of suppliers has a long history, and the price war has intensified this contradiction.
In addition, when the profitability of car companies is severely overdraw, layoffs have also become the main way to improve efficiency and reduce costs this year. According to incomplete statistics, Tesla, Volkswagen, GAC Honda, Li Auto, and other car companies have set off a wave of layoffs, and Zeng Qinghong said that GAC has also laid off a lot.
Zeng Qinghong lamented, “This kind of ‘rolling’ is not a solution. What is the purpose of a company? Profit, what is the profit for? To contribute to the country, to contribute to society, to pay taxes, to provide employment, but now how many have been laid off?”
Li Shufu believes that the degree of internal competition in China’s automotive industry is the highest in the world, and the price war is higher than ever, unparalleled in the world. This phenomenon is both good and bad.
“If the marketization level is high, the laws are sound, and the law enforcement is strict, transparent and fair competition is a good thing. On the contrary, it is a bad thing. The healthy development of any industry must be reflected in the input-output ratio to achieve good economic benefits. Endless internal competition, simple and crude price wars, the result is cutting corners, counterfeiting, and disorderly competition that is not compliant with regulations.” Li Shufu said that only by competing healthily according to the law can sustainable and high-quality development be achieved.
Cui Dongshu said that the price war is a manifestation of the system’s capabilities and is an inevitable stage in the development of the industry. He introduced that the price war from February to April this year is rare. According to statistics, from January to May this year, 56 electric vehicles have reduced prices, and the total number of price reduction models in 2023 was 70. However, after May, the price war has shown a trend of slowing down, and it is unlikely to see a situation where the price is reduced by 20% at will. The car market has entered a more reasonable competitive stage.
Cui Dongshu emphasized that the “rolling” in the automotive industry is not a simple low-level competition, but a necessary stage for the transformation of old and new production dynamics and a major industrial transformation. He called on companies to protect the rights and interests of employees reasonably while adapting to industry competition to avoid excessive internal competition.
Li Shufu also believes that healthy competition can achieve high-quality development. “Today’s China is not short of car companies, but what is lacking is an innovative automotive parts ecological environment, a car safety software and hardware technology company with original capabilities, a competitive industrial software supplier, and an automotive company with original capabilities.” Li Shufu said, “Rely on the historical opportunity of developing the intelligent electrification of the automotive industry to drive the development of China’s intelligent electric vehicle industry chain is a difficult historical task.”
Wang Chuanfu, the chairman of BYD, who is known as the “king of internal competition,” has a positive attitude towards internal competition. In his view, whether it is rolling prices, technology, scale, or traffic, it is actually a market competition, and the core of market competition is an excess economy. “Only when there is an excess can there be competition, and competition can produce prosperity, which is a natural law, there is no need to be anxious. All entrepreneurs must actively embrace and participate in this roll, and truly come out in the competition.”
Zhu Huarui, the chairman and party secretary of Changan Automobile, also believes that rolling is the process of good money driving out bad money. Rolling itself means the pursuit of excellence, which will roll out a new height of Chinese brands and roll out the maximization of user benefits, truly creating value for users. In the next ten years, there will be more Chinese brands “rolled” into world-class brands.
It is not difficult to see from the current market environment and the attitudes of the people in charge of major car companies that the “internal competition battle” in China’s automotive industry is difficult to stop in a short period of time.
He Xiaopeng, the chairman of Xiaopeng Automobile, pointed out in the “start work letter” of the 2024 Lunar New Year that he regards 2024 as the first year for Chinese car brands to enter the “blood sea” competition, and also the first year of the elimination competition.
At the 2023 annual performance release of Geely Automobile, Gan Jiayue, CEO of Geely Automobile Group and executive director of Geely Automobile Holdings Limited, also said that entering 2024, the competition in China’s automotive industry is more intense, the elimination competition has fully started, the industry will enter a period of integration, and reshuffling.
Wang Xia, the head of the Automobile Industry Branch of China International Trade Promotion Association, said that compared with the first half of the automotive industry’s transformation, the second half seems to have undergone a sudden change. The whole industry is shrouded in the atmosphere of “rolling”, rolling prices, rolling configurations, rolling speed, rolling traffic, and even rolling bosses. The feeling is that the second half has pressed the fast-forward button, the “elimination competition” is accelerating, and the victory or defeat seems to be in the morning and evening.
In Wang Xia’s view, “the second half starts with a price war, but it must be decided by a technology war and a value war in the end.” Wang Xia said that the high-quality development of the second half must be based on the premise of establishing a new, stable, and win-win industrial
ecosystem, and globalization is also an urgent need for the second half.
Li Xueyong, the deputy general manager of Chery Automobile Co., Ltd., believes that the rapid development of Chinese brands is inevitable in the price war. First, it is impossible not to fight a price war, and how to create the best value for consumers at the corresponding price is the correct answer. Second, the serious internal competition of the “price war” helps the rise of Chinese brands from another aspect, reflecting the technological progress and cost advantages of Chinese brands. Third, from the price war to the value war, it reflects the enterprise’s understanding and persistence of long-termism. Fourth, the core from the price war to the value war is to focus on the global market, which tests the ability of enterprises to layout the global market, and to focus on future development, a world-class automotive enterprise must be built.
In fact, facing the intensification of internal competition in the domestic market, the overseas market has also become a new breakthrough for Chinese brands. As Gu Hui Nan, the general manager of GAC Aion New Energy Automobile Co., Ltd., said, “In addition to competing in China, it is more important to look at the world and participate in global competition.”
In 2023, China’s automobile export volume was 4.91 million vehicles, becoming the world’s largest automobile exporter. On this basis, many companies are even seeking to build factories overseas or cooperate with foreign car brands to export technology and funds, allowing the Chinese automotive industry to go global.
However, Gu Hui Nan pointed out that the strong growth of China’s automobile exports in 2024 is also facing increasing barriers set by other countries for the export of new energy vehicles from China.
Therefore, Gu Hui Nan suggests that Chinese car brands build a “going to sea” system, establish an international development talent team, and do a good job in multi-level “going to sea” such as products, technology, and culture.
From the current situation, Chinese car companies have made quite obvious progress in “going global,” but the constantly changing external environment is increasing the difficulty of climbing to a higher level. Therefore, the pressure of internal competition in car companies still mainly exists in the domestic market, and there is no trend of relief.
