Knowing that it is unhealthy but powerless to stop it, when will the simple and crude car price war end?

On the eve of the opening of the 2024 Beijing Auto Show, the already tragic price war in the auto market has escalated again.

The price has never been reduced by Tesla, which is controlled by the market, and it is still a price reduction for the whole series.

Li Xiang, who has never been convinced, also bowed his head for the first time, saying that the ideal cars that do not fight the price war have also been reduced in price.

On April 21, Tesla China announced a price reduction of 14,000 yuan for all models, of which the original starting price of the Model 3 rear-wheel drive version was 245,900 yuan, and the adjusted price was 231,900 yuan. The Model 3 long-range all-wheel drive version is 285,900 yuan, and the adjusted version is 271,900 yuan.

After the adjustment, the price of the new version of the Model 3 is only 16,000 yuan higher than the price of the standard version of the Xiaomi SU7.

On April 22, Li Auto announced a price reduction for all models.

Since its launch, the controversial Ideal MEGA has dropped the most, with a price reduction of 30,000 yuan to the current price of 529,800 yuan, while the price of L series models, including the L7, L8 and L9, ranges from 18,000 to 20,000 yuan depending on the configuration.

In 2024, starting from BYD, to the launch of Xiaomi cars, to the price reductions of Tesla and Ideal, the tide of price wars will be more ferocious than one wave.

Compared with the fuel vehicles of the year, the new energy vehicles with unlimited scenery today are more deeply involved in the price war in order to seize market share.

Back on March 28th, the launch of Xiaomi SU7 is comparable to this year's car circle "Spring Festival Gala", and there has never been a car that has been listed to break through the circle and become a social news. One day after the launch, 90,000 orders were placed for the SU7, and the delivery time for the new car was extended from weeks to months or even half a year. There is also news on the Internet that users waiting for a test drive in the Xiaomi store are lined up until 3 o'clock in the morning.

March 29, 2024, Beijing Oriental Plaza, "Xiaomi Home" flagship store.

The table lifted by Xiaomi has not yet landed, and its peers are already like frightened birds. Only two days after the SU7 press conference, many car companies released price reduction information as if they had discussed it.

First of all, the head traffic companies officially announced price cuts. For example, Wenjie announced that the entry version of the new M7 will drop by 20,000 yuan, and NIO will give a subsidy of up to 1 billion yuan for the replacement of oil vehicles.

More car companies are following suit. Wuling Motors officially announced that its Wuling Binguo launched a preferential activity of up to 10,000 yuan, and the price range after subsidies is 55,800-83,800 yuan.

ZEEKR Automobile officially announced that its ZEEKR 007 launched a rear-wheel drive enhanced version, with an official guide price of 209,900 yuan, which is equivalent to a disguised price reduction of 20,000 yuan.

Geely Automobile has given discounts ranging from 14,000 to 53,000 yuan for its Emgrand L, Xingyue L, and Haoyue series.

In addition, Chery, Jiyue, and even the joint venture brand FAW-Volkswagen have also opened a price reduction mode, and the lowest price of Volkswagen Lavida is only 79,900 yuan.

This is in line with the wave of price cuts led by BYD in February. But it's worth thinking that BYD's strong position is recognized in the industry, and it seems to be a reasonable choice at least. But Xiaomi cars have not been verified by the market, why did it also cause all kinds of heroes to rush to reduce prices?Xiaomi SU7 configuration has not been involved in such hysteria?

According to Zhang Junyi, managing partner of Oliver Wyman, part of the reason why car companies choose to cut prices in these days is to seize the minds of these users before the "7-day no reason to cancel the subscription" of Xiaomi SU7. Once the 7-day deadline has passed, the order of Xiaomi Auto will be locked.

Of course, from the perspective of the larger environment, it must be to use price changes to boost sales and lay a good foundation for market performance in the second quarter.

Whether the price war is useful or not is difficult to determine using the control variable method. Judging from recent industry reports, price reductions do not have much gain on users' car purchase decisions, and even have a negative effect, and users of models in the higher price range are less sensitive to price fluctuations.

Zhang Junyi believes that the reason for this situation is that users have their own expectations in their minds about the positioning of a certain brand. In anticipation, a higher or lower price does not affect the purchase decision. For general consumer goods, price reduction increments are a normal phenomenon. And if it is a luxury product, then the price reduction may reduce the volume, and the price increase will increase. By analogy with cars, this would also explain why price wars are beneficial for the entry-level market but not for the high-end market. Moreover, people who buy luxury cars do not only consider the model product, but also care about the brand experience, service and other hidden benefits in the future.

On the other hand, new car owners do feel a good deal after the price cut, but old car owners will inevitably feel stabbed in the back. Therefore, the price war is a "double-edged sword".

For car companies, the impact of the price war is also difficult to estimate. The only thing that is certain is that profits will suffer. The head enterprises have profit margins that can be compressed, and the followers are not so lucky, and in the end they may lose profits and do not occupy the market. The management of a mainstream new power company told The Paper: "Although the market cake is getting smaller, it still exists. The healthy approach is to win customers through the improvement of product and service capabilities. But there is no more effective short-term means than to reduce prices. I know it's unhealthy, but I can't stop it. ”

In addition, there are also "drunkard players who don't want to drink" in the industry. The above-mentioned new force person said: "Some companies are more concerned about the market value of stocks than profit losses, so they will take some more extreme ways to digest inventory, which will also affect other brands in the market to follow up." ”

In his view, the drop in car prices is good for consumers in the short term, but not necessarily for consumers in the long run – "any drastic measures will have a backlash," he said.

Zhang Junyi told The Paper that according to Michael Porter's competition strategy, the competition of automobile companies is roughly divided into three types -- cost competition, segment market competition and differentiated competition. Differentiated competition can be summarized as "no one has me, no one has me", such as intelligent driving that is the main focus of some new forces, such as ultra-long comprehensive battery life. In this regard, it is already difficult for any company to crush its competitors.

NIO's construction of the energy supplement system can be understood as a kind of differentiated competition, but the price it spends is continuous and large investment. Without the endorsement or even participation of more state institutions, it may be more challenging for a single enterprise to rely on its own enterprises, so NIO has recently introduced many partners, especially the government, because the battery swap system itself has the special attributes of "everyone picks up firewood" and national infrastructure.

Then there is the competition in the segment market, which can be understood as the competition for category innovation. The range extender route adopted by Li Auto at the beginning is one of the successful cases of category competition. But now, it has also touched the edge of category homogenization.

Then there is the cost competition, which is the "most untechnical" (in fact, the most difficult system competition result) and the most cruel way of competition. To say that it is obscure is a competition of system strength, in fact, it is a battle for the right to speak among suppliers. The so-called strong voice is the ability to reduce prices to suppliers. Taking the world's No. 1 Tier1 Bosch as an example, its senior management revealed in an interview with the media that some OEMs asked it to reduce its supply price by 30% this year. "Then we might as well go out of business," the senior executive said frankly.

Earlier, Chen Yudong, former president of Bosch China, revealed that it is also very common to be owed money by OEMs, and the ultimate means is to "stop supply".

Bosch is still the same, not to mention the sub-suppliers that rank lower or further up the industrial chain, and the pressure to reduce prices will be passed on to these companies layer by layer.

According to incomplete statistics, affected by the pressure of transformation and cost pressure in the automotive industry, in the first three months of 2024, five suppliers of Bosch, ZF, Freya, Valeo, and Continental have announced layoff plans, totaling 30,000 people.

"The price reduction has a great impact on the entire industrial chain, and there will be problems. But if you oppose excessive price reduction, you are considered a 'bad person' by many people. Cui Dongshu, secretary general of the passenger association, told the surging news reporter.

At present, a new round of cars to the countryside and trade-in policies have been launched, which was once considered a "panacea" to boost the car market, and many companies are actively responding to the policy call. For example, NIO launched a 1 billion yuan car purchase subsidy on April 1, giving users who switch from fuel vehicles to NIO cars a "decoration subsidy" of 10,000 yuan per car. This is a move that follows the trend of electrification, responds to the call for trade-in, and more importantly, stabilizes the pricing system through subsidies rather than price reductions.

However, in Zhang Junyi's view, in addition to price wars and policy guidance, the most important thing is to make consumers have confidence in macroeconomic trends, have expectations for the stability of car prices, and be willing to spend money, so that it is possible to make increments, otherwise it is a game in the stock market.

From a higher perspective, the price war is not a good thing for the global layout of Chinese automakers. Cui Dongshu, secretary general of the passenger association, believes that the price war may have an adverse impact on going overseas, and other countries may do everything possible to obstruct and smear Chinese car companies going overseas if the price is low.

When the cost control ability completely exceeds the affordability level of overseas local car companies, related trade barriers will arise. The US Inflation Reduction Act, the European countervailing duty investigation against China, and the new tariffs all came from this.

Even in the domestic market, "as Chinese automakers gradually eat up the share of overseas automakers, this may affect international relations," Zhang said. "In the case of German companies, the BBA is still mainstream in China, so when Europe announces an increase in tariffs on China, German companies will stand on China's side and oppose the increase in tariffs. If their share in China is low, it will be a different attitude. "There are some things that need not be said, just refer to the behavior of Stellantis, Renault and other "asset-light" car companies operating in China. After all, the EU's countervailing investigation into Chinese electric vehicles was "fanned by the flames" in France, where the headquarters of the two car companies are located.

In the long run, simple and crude price wars will do more harm than good.

Even from the most direct consumption level, it is the wool that comes from the sheep, and the reduced price will be "compensated" from the product power and service level. From the perspective of industrial chain reshuffle optimization, the price war is too fierce, and the transformation of the industry takes time to precipitate. From the perspective of the global auto market pattern, the price war is not beneficial to the overseas "treatment" of Chinese automakers or even in terms of international relations.

However, in the face of huge production capacity and many competitors in the market, most of the industry insiders cannot see the end of the price war. In the fierce price war, consumers also have a feeling of "leeks can't be cut", which is likely to result in more and more people choosing to hold coins for purchase.

At present, Chinese automakers urgently need to find a way beyond price competition, otherwise they may become a back-to-back prisoner's dilemma paradox with the most rational judgment, and undermine the long-term development of the industry.