The car price war lasted a year and there were no winners
2023 is coming to an end, but the price war is not over yet.
Text丨Zhao Yu
Editor丨Wang Hailu and Huang Junjie
Pricing power is a brand's most important asset. Warren Buffett once said, "If you can afford to raise prices without losing to your competitors, then your business is very good." If you have to pray to the heavens before you raise the price by 10%, then your business is terrible. ”
In the Chinese auto market in 2023, if a brand can hold on to its share by only 10% price cut, it is already a successful model.
In January of this year, Tesla took the lead in cutting prices in the Chinese market to boost orders. In the following months, a number of electric vehicle manufacturers and fuel vehicle manufacturers followed suit, and the automobile price war started in the whole industry. As of December 2023, this price war has been going on for almost a year, and it has been more intense than expected.
Deng Chenghao, CEO of Shenlan Automobile, an electric vehicle brand under Changan Group, said at the annual meeting forum of the China Electric Vehicle 100 Association in April this year that if new energy manufacturers want to achieve a market share of 50%-80%, they will definitely launch a price war against fuel vehicles.
In December, Deng Chenghao's statement at the 2023 World New Energy Vehicle Conference became, "The price war has come and gone, and the prices of many products are far from the value, which is not conducive to the real high-quality development of the new energy vehicle industry." ”
Li Yanwei, a member of the expert committee of the China Automobile Dealers Association, said that this year's price war in the automotive industry has made everyone realize that the competitive barriers to service, operation, and product positioning that car manufacturers have emphasized before have become less effective, and only price reductions are the most effective.
Compared with gasoline vehicles, electric vehicles may have more room for price reduction. A practitioner in the power battery industry told "Late Auto" that since the beginning of the year, the price of lithium carbonate, a key raw material for power batteries, has dropped from about 600,000 yuan per ton to about 100,000 yuan, which has reduced the average battery cost of each electric vehicle by about 14,000 yuan.
In the price war in the past year, most automakers can only choose to exchange price for volume, because the price reduction is much higher than the cost reduction, some manufacturers are even selling cars with negative gross profits. An auto market observer told Late Auto that while most manufacturers have lost profits due to price wars, in the current situation, winning market share is actually a winner.
BYD and Li have led the way this year, with annual sales growth of 50% and 180% expected year-on-year. Tesla, as the first manufacturer to launch a price war, is expected to achieve a year-on-year increase of 33% in annual sales to 600,000 units.
Among the new power manufacturers, Xpeng and NIO are not expected to achieve their annual targets, and are expected to record net losses of more than 10 billion yuan while their annual sales growth rate does not exceed 30% year-on-year. As for traditional luxury brands such as BBA and even Porsche, although they are basically able to maintain sales, they are facing greater competitive pressure.
Tesla sparked a price war
The year-long price reduction started with Tesla.
In January this year, Tesla China announced that it would cut the prices of all models of the Model 3 and Model Y. Among them, the price of the rear-wheel drive version of the Model 3 was reduced from 265,900 yuan to 229,900 yuan, and the price of the rear-wheel drive version of the Model Y was reduced from 288,900 yuan to 259,900 yuan, and the one-time price adjustment of both products exceeded 10 percentage points.
After Tesla, the two brands of Wenjie and Xpeng quickly followed up with price cuts. Among them, the prices of the M5 and M7 will be reduced by 28,800-30,000 yuan, the price of the Xpeng G3i will be reduced by 20,000-25,000 yuan, the price of the Xpeng P5 will be reduced by 23,000 yuan, and the price of the Xpeng P7 will be reduced by 30,000-36,000 yuan.
Ideal didn't directly follow up with price cuts, but launched a lower-priced entry-level model in February. The Air version of the Ideal L7 and Ideal L8 was launched, and the price was 20,000 yuan lower than that of the Pro version, which lowered the purchase threshold. In August, Ideal continued the above play and launched the Pro version of the L9 model, which is 30,000 yuan lower than the L9 Max. At the same time, Ideal also launched an insurance subsidy policy of 10,000 yuan for users who newly order any of the models of Ideal L9, L8 and L7 within one month.
BYD also leads the market in terms of adding entry-level models. BYD launched the Qin PLUS DM-i Champion Edition in February this year, with a starting price of less than 100,000 yuan, a disguised price reduction of 14,000 yuan. Jiang Xuanyao, a researcher at Jaylan Road, an auto market information and consulting service, told Late Auto that such a pricing strategy caused a lot of shock in the market at the time.
Affected by this, on February 20, Nissan Sylphy, a fuel vehicle of the same level as the Qin PLUS DM-i, launched a "limited-time price reduction" activity with a starting price of 79,800 yuan, with a price reduction of 20,000 yuan. Later, basically all the mainstream models of the BYD brand were launched in the Champion Edition.
NIO did not directly reduce the price, but by untying the rights and interests of battery swapping, the starting price of all models was reduced by 30,000 yuan. NIO encourages users to swap batteries and gives away 4 or 6 battery swaps every month. However, after the battery swap rights were unbundled in June, users who purchased cars under this scheme would need to pay 100-150 yuan per battery swap.
The price war in the fuel vehicle market is also fierce. In March, the Hubei provincial government announced that it would provide subsidies for some local fuel models, and 56 models of seven automobile brands, including Dongfeng Citroen, Dongfeng Nissan, Dongfeng Fengshen and Dongfeng Peugeot, were launched under the Dongfeng Group, and the government superimposed comprehensive subsidies of up to 90,000 yuan. This incident has become the fuse for joint venture fuel vehicles to participate in the price war, and nearly 40 car companies have followed up in a relatively short period of time. Some companies that were still hesitant were also brought in one by one.
Jiang Xuanyao recalled to "Late Auto", "At that time, the market price reduction was particularly severe, and the overall decline reached more than ten percentage points, and I felt that all fuel vehicle manufacturers had started a price war." ”
Luxury cars give up premiums, and new forces break promises
Li Yanwei divided this year's auto price war into two games: the first half and the second half. In the first half of the year, led by Tesla, its price cut in January directly drove some brands to follow suit, and then the clearance of the China VI A model of fuel vehicles led to a large-scale price reduction of fuel vehicles.
The price reductions in the second half of the year mainly occurred in the new domestic power brands, such as Zeekr and NIO, as well as the low-price launch of facelifted models such as the new Wenjie M7, Xpeng G9 and G6.
Later, even the first-line luxury brands of fuel vehicles began to reduce the prices of some of their key models, and no longer pursued the premium of luxury brands.
For example, Mercedes-Benz's EQE electric car, with an official price of 500,000 yuan, has dropped to 350,000 yuan in the second half of this year, BMW's X5 electric car, with an official price of 750,000 yuan, has a market transaction price of 470,000 yuan, and the price of a Land Rover Defender has dropped from the official nominal price of 1.049 million yuan to 819,000 yuan.
A luxury brand dealer told Late Auto that the price war is putting a lot of pressure on dealers of traditional brands: "Because the money is lost to us." ”
He said that since the beginning of this year, residents' incomes have not met expectations, resulting in the suppression of the consumption of luxury models priced at one million yuan. "It's not easy for luxury models like Mercedes-Benz, BMW, and luxury models like Porsche. Porsche has officially lowered its sales forecast for the Chinese market this year. ”
Toyota's Lexus brand has enjoyed premium premiums for high-end brands all year round, and product prices are rarely disturbed by market fluctuations, but it has also joined the price reduction army in the second half of this year.
According to "Late Auto", for most of last year, the market for Lexus ES series models was very tight, and even if consumers were willing to increase the price, there was a high probability that they would not be able to buy the current car. As the price war continues, since the beginning of this year, the Lexus ES series models have gradually experienced a process from "only existing cars with price increases", to "existing cars without price increases", and then to "not only existing cars but also price reductions of 40,000 yuan".
Even Toyota's most famous luxury MPV model, the Alpha, has also been affected by the price war. In the past, the price of an Alpha in the Chinese market was around 800,000 yuan, and consumers not only had to pay an additional 800,000 yuan if they wanted to buy it, but in some popular cities, they might have to queue for months or even years.
"Late Auto" learned that due to intensified competition, in the first quarter of this year, the price increase for Chinese consumers to buy an Alpha has dropped sharply to about 400,000 yuan, and in the fourth quarter, it has further dropped to 170,000-180,000 yuan.
Fuel vehicle manufacturers generally adopt the dealer model, and their price reductions are reflected in the terminal discounts, while electric vehicle manufacturers are more likely to adopt the direct sales model, and they will put a lot of price reduction actions in the car purchase rights, such as giving away insurance, reducing or reducing the balance payment, etc., and try not to directly reduce the price of the terminal. But in the second half of this year, electric vehicle manufacturers have also begun to adopt more direct price reductions in an effort to stimulate consumer purchases.
The price of AVATR 11 Hongmeng Edition is 20,000-50,000 yuan lower than before;The most popular new Wenjie M7 on the market is directly reduced by 40,000-50,000 yuan from the 300,000 yuan price range where the old model is located, entering the price range of about 250,000 yuan;2024 Xpeng G9 A total of 5 models will be launched, with a maximum reduction of 110,000 yuan and a minimum reduction of 46,000 yuan compared with the old model.
In May this year, at the first quarter of 2023 results communication meeting, He Xiaopeng, chairman of Xpeng Motors, said that in such a fierce competition, Xpeng hopes to adopt a balanced pricing method that prioritizes scale. A market analyst believes that He Xiaopeng's "scale first" proposal at that time has actually laid the groundwork for the low-price listing of Xpeng G6 and 2024 Xpeng G9.
As for the new brand, which does not have the burden of the old model, its price reduction measures are even more extreme. On November 30, the Jiyue 01, which had just been listed for a month, dropped 30,000 yuan. For old car owners who have made up their minds or picked up their cars, Jiyue will directly give 30,000 yuan in cash compensation, which is a treatment that Tesla old car owners have never enjoyed.
BYD and Li may be the last two domestic new energy vehicle brands to follow up with explicit price cuts. Entering the fourth quarter, both manufacturers have changed their previous practice of only releasing preferential policies on offline terminals, and instead directly released model price reduction information through online official channels, making every effort to sprint to the annual sales target.
In the past, Ideal Management would often use the price of the product to emphasize the image of its luxury brand. In January this year, Li Xiang, CEO of Ideal, also posted on Weibo, "Ideal L9 will stick to the price range of 400,000-500,000 yuan, and Ideal L8 and L7 will stick to the price range of 300,000-400,000 yuan." However, in the fourth quarter, the starting price of the ideal L7 terminal has been less than 300,000 yuan. According to "Late Auto", the current ideal terminal discount range can reach more than 30,000 yuan.
According to a report jointly released by the Passenger Car Association and a third-party market consulting agency, Anluqin, from January to October 2023, the average price reduction in the passenger car market has fluctuated from 17,000 yuan to 24,700 yuan, and the average price reduction in the new energy passenger vehicle market has increased from 5,600 yuan to 11,900 yuan.
In the auto price war, new energy brands are stronger than traditional fuel vehicle brands, and within the camp of new energy vehicle companies, independent brand manufacturers will be more active than joint venture car companies. Jiang Xuanyao believes that independent brand manufacturers, including new forces, should take the initiative to fight a price war in the market, rather than waiting for the prices of other manufacturers to come down, and then passively accept the facts and adjust product prices.
She believes that the survival pressure of new power manufacturers is very high, and some brands have disappeared after a short period of development. If there is no stronger desire to occupy the market, then the new power manufacturers may be eliminated from the market competition. In a short period of time, only by exchanging profits for the market can there be follow-up development opportunities.
The strategy of "exchanging price for volume" of the leading new power manufacturers has generally achieved the expected results. According to the sales data released by various car companies, the sales of new power brands such as Ideal, NIO, Xpeng, Leap, Nezha, and Zeekr all increased significantly in November compared with January. Among them, Leap's sales increased by more than 1,500% in the same period, reaching 18,500 units in November.
The price war has also extended to the capital market. On September 12, the new Wenjie M7 was released, and official data shows that the cumulative number of this model has exceeded 100,000 units. So far, Li Auto's share price has fallen more than 25% from its August high. A number of secondary market sources told "Late Auto" that although the hot sales of the new Wenjie M7 did not affect the ideal sales volume and order volume, it greatly compressed the ideal profit expectation for a single car in 2024, which is one of the important reasons for the decline of the ideal stock price.
For different types of car brands, the higher the penetration rate of new energy, the stronger their attitude in the price war. In the price war, the first to bear the brunt is the independent brand represented by the new power manufacturers. According to the data of the China Passenger Car Association, the new energy penetration rate of domestic brands has increased from about 44% to more than 60% year-to-date, while the new energy penetration rate of luxury brands is currently about one-third of that of independent brands, and the new energy penetration rate of mainstream joint venture brands has not exceeded 7% despite all the improvements.
As the year-on-year growth rate of the new energy market is much higher than that of the fuel vehicle market, independent brands that are inclined to more resources for electric vehicles have gained a larger market share. According to the data of the China Passenger Car Association, the market share of domestic brands has increased by about 6 percentage points year-to-date, and now it has steadily accounted for half of China's auto market, while the market share of luxury brands and mainstream joint venture brands has declined to varying degrees.
The price reduction is a year, but it's not over yet
At an offline sharing event in early 2020, Li Xiang said that there are only two ways for a car brand to increase its sales: increase the value of the product or reduce the price of the product.
Since the beginning of this year, most manufacturers have chosen the latter. However, despite such a full-scale and ongoing price war, the growth of the overall market is still limited. According to the data of the China Passenger Car Association, from January to November 2023, the cumulative retail sales of China's passenger car market will be 19.345 million units, a year-on-year increase of only 5.3%.
Among them, the cumulative year-on-year growth rate of the new energy passenger vehicle market reached 35.2%, and the monthly year-on-year growth rate basically remained above 20%. Although the market share of gasoline-powered passenger vehicles still accounts for about 65% of the passenger car market, in the first 11 months of this year, its sales volume showed negative year-on-year growth in eight months, and the cumulative sales fell by 5.9% year-on-year.
The above-mentioned auto dealers believe that the sales of new energy vehicles priced at about 300,000 yuan this year are growing very fast, but this is not necessarily completely due to consumption upgrades, but may be the result of consumption downgrades. "Consumers originally planned to buy a BMW X5 of 600,000 or 700,000 yuan, but now they have bought an ideal of 300,000 or 400,000 yuan, and the most hurt are second-tier luxury brands. ”
At present, it is common for automakers to overstock inventory from dealers. According to data from the China Automobile Dealers Association, since 2023, the dealer inventory warning index has remained high at more than 50%, regardless of whether it is a luxury/import brand, a mainstream joint venture brand or a domestic brand.
The inventory warning index takes 50% as the boom and bust line, and below 50% is a reasonable range. The higher the inventory warning index, the lower the market demand, the greater the inventory pressure, and the greater the operating pressure and risk.
The China Automobile Dealers Association explained that China's auto dealers industry is already in a recession range because the auto dealer inventory warning index is above the 50% boom and bust line.
It is worth noting that although the price war has been protracted, up to now, there has been no effective market clearance in China's auto market, and the market concentration of leading manufacturers has basically remained stable. According to the data of the Passenger Association, since the beginning of this year, the monthly market share (CR10) of the top 10 manufacturers in terms of sales volume has remained at about 60%, while that of CR5 and CR3 has remained at about 40% and 28% respectively.
In March 2023, Wang Chuanfu said, "In the price band of 10-200,000 yuan, BYD has pricing power, and we also hope to be more stable, so as not to make everyone uncomfortable, and no one else has a way to live." ”
However, in fact, both BYD and the Chinese auto market have not been fluctuating in prices throughout the year. In November, BYD launched a new round of price reduction promotions for a number of products of its Dynasty Network and Ocean Network. According to the financial report, BYD's gross profit margin in the third quarter was about 22.2%, 6.5 percentage points higher than Tesla, which means that BYD still has plenty of room for price reduction.
Some industry analysts believe that the root cause of this round of automobile price war is mainly due to changes in supply and demand.
In terms of market demand, data from the China Statistical Yearbook shows that in the 10 years from 2011 to 2021, the number of people aged 20-49 in China decreased by about 104 million. China's auto market has basically bid farewell to the "golden age" of first-time purchases and high sales growth year after year, and has gradually entered a new stage of increasing purchases/trade-ins and relatively constant total volume.
According to the above-mentioned leading domestic car dealer, after 2017, the annual sales of China's auto market have never exceeded 25 million units, and if compared with the U.S. market, this number is depressed as a whole.
On the market supply side, the supply capacity of China's auto industry has been continuously improving since 2023 due to the subsidence of the epidemic and the recovery of supply chains. On the one hand, the number of market participants has increased, and on the other hand, the number of new cars that each manufacturer can offer has also increased significantly, making the already competitive Chinese auto market even more crowded, Li said.
At the same time, the automobile industry is a manufacturing industry with strong scale effect. As Wang Chuanfu mentioned at BYD's 2022 annual shareholders' meeting, "the gap between monthly sales of 3,000 units and 30,000 units is very large", with the expansion of production scale, the fixed cost of automobile products remains unchanged and the variable cost increases in the same proportion, which makes the marginal cost of automobile production decrease, and automakers have a natural incentive to dilute costs by increasing sales.
A senior practitioner in the auto industry once told "Late Auto" that every auto price war is a process of elimination and clearance of car companies.
In 2018, when the cold winter of China's auto market and the imminent implementation of the China VI emission standard were imminent, BMW launched a price war in January of that year, and the price of the 5 Series luxury car was reduced by 47,000 yuan.
In this price war five years ago, Japan's Suzuki sold its stake in China at a price of 1 yuan and completely withdrew from the Chinese market; Chongqing Lifan and Qoros basically disappeared from the mass market after this year; and the first domestic auto trading company to land on the A-share market, a huge group with a market value of 80 billion yuan, went bankrupt.
So far, no well-known car companies or car dealer groups have been eliminated due to price wars. Therefore, it is foreseeable that the price war in China's auto market will not end abruptly with the ringing of the New Year's Eve bell. In 2024, there's a good chance that the car price war will continue or even become more intense in some way.
Image source: Visual China