The price war in the domestic auto market is still going on, and it is still showing an intensifying trend.
According to the relevant information compiled by the Gasgoo Automotive Research Institute, as of April this year, nearly 40 automobile brands and more than 130 models have participated in the price war in the domestic automobile market.
BYD, a leading brand in the new energy market, has opened a new era of "low electricity than oil" in the domestic auto market by launching a series of Glory Edition models; Among the new power brands, Ideal, Xiaopeng, and Wenjie have also joined the army of price reductions; The mainstream joint venture brands, which have gradually been in a weak position in the market, have been coerced and have to reconstruct the price system, showing the market "sincerity" that has not been seen in decades before.
Image source: Xpeng Motors
The price war has swept the entire auto market has been unstoppable, but in this process, we have to think about a question, in an increasingly "volatile" market environment, who is the ultimate beneficiary?
Are consumers really benefiting?
Who benefits from the price drop? Many people will definitely say that this is an obvious thing, and it will definitely be beneficial to consumers, and they can buy more advanced models at a lower price, and consumers will definitely not suffer a loss.
This is the most direct causal inference.
There are more and more cost-effective products, and technological equality can also bring more and more low-cost intelligent configurations to improve consumers' car experience. From this point of view, the more fierce and long-lasting the price war in the auto market, the happier consumers should be.
But the actual situation that Gasgoo understands is not so simple. "I had a plan to buy a car last year, but I haven't made a move until now," Wang Wei (pseudonym) told Gasgoo, "I'm picky, there are too many new cars, and I always feel that if I place an order a little later, it can be cheaper."
There are not a few consumers who hold the same view as Wang Wei. Analysts at Gasgoo Automotive Research Institute believe that the increase in new products and the acceleration of iteration will make it difficult for consumers to make car purchase decisions to a certain extent. At the same time, frequent price wars will increase consumers' wait-and-see sentiment, and the time for car purchase decisions will be extended accordingly. How to choose the best price at the right time will be a difficult choice for many consumers, and it will affect the consumer's car buying experience to a certain extent.
In addition, there are friends who are ready to buy a car, and they have expressed another concern about Gasgoo, which is the protection of rights and interests. They don't believe that there will be a free lunch, and that price reductions mean cost reductions, and that reduced costs will ultimately be reflected in the quality of products and services? In this regard, we also interviewed industry insiders, and the general view is that in a short period of time, car companies are unlikely to take the quality of products and services to reduce costs, especially mainstream brands, which are definitely unwilling to exchange brand reputation for short-term market performance. On the contrary, for many brands, in the new environment of price war, in order to attract customers, they may further optimize their services.
If the price war mainly increases the difficulty of car purchase decisions for those who hold coins to be purchased, and the impact is mainly reflected in the car purchase experience, then for old car owners, the impact is more substantial, and the loss is real money.
Mr. and Mrs. Zhang Mo (pseudonym) are both chauffeurs, and they bought an Accord more than a year ago to solicit customers. Zhang Mo told Gasgoo that in order to increase their income, the husband and wife are day and night shift sports cars, but the hard-earned money earned in the past year or so basically can't erase the price reduced by Accord since they bought the car. "This year is in vain" Zhang Mo said, "Who would have dared to believe that the Accord terminal could be discounted by 4 or 50,000 yuan." Regarding the current domestic auto market, Zhang Mo is becoming more and more incomprehensible.
And which consumers who previously placed orders for Japanese cars because they believed in the value retention rate of Japanese cars are now resisting the second wave of "crit", and the so-called myth of the value retention rate of Japanese cars is also crumbling under the impact of the price war in the car market. The price system of new cars has collapsed, and there is still talk about the value retention rate of used cars.
Of course, it is not only the Japanese that the residual value of used cars has collapsed, and other car series may collapse earlier. The ones who were really stabbed in the back were the old car owners and second-hand car dealers.
What do manufacturers get?
For the price war in the auto market, the consumers who passively participate have a contradictory side, and the auto companies that took the initiative to launch this "war" and the upstream supply chain enterprises, the price war has become the current situation, what have you gained? And what is lost?
In the current domestic automobile market, various brands can be said to be singing and I am on stage, escalating the intensity of the price war again and again. From luxury cars to economic cars, from fuel vehicles to new energy vehicles, they have all begun to "roll" prices. So far in 2023, the price war has developed from a transitional means in response to relevant policy adjustments (the implementation of the "China VIB" emission standard nationwide) to a regular promotional measure after the continuous increase in market competition pressure, and price reduction has become the main tone of auto market competition.
The 2023 financial report data of 18 car companies compiled by Gasgoo Auto found that the business conditions of car companies have undergone fundamental changes due to factors such as price wars and the continuous expansion of the scale of new energy. Among the 18 companies we counted, more than half of the car companies are suffering from the dilemma of slowing down or even declining profit growth, and at this stage, there are only two Chinese new energy brands with large-scale advantages and excellent profitability, BYD and Ideal.
The profitability of most car companies are facing a severe test, but in order to maintain market share, in the Chinese market has to continue to adopt a price reduction strategy, Gasgoo believes that there are scale advantages and extreme cost control of car companies or can cope, but for those car companies that have been at a significant disadvantage in the current stage of competition, the next days, or will be more difficult. The profitability of Chinese automakers will be further differentiated.
The increasingly fierce price war in the vehicle market will inevitably transmit pressure to the upstream supply chain. The reason is very simple, if the OEM is forced by the market, the supplier will be forced by the OEM. Xu Daquan, President of Bosch China, previously revealed that many customers have put forward price reduction requirements for Bosch, and some customers will even say "no price reduction will not pay".
In terms of price reduction, Bosch has its own "red line" and will not trade losses for market share. Bosch mainly gives OEMs more room to reduce prices through price reductions, production efficiency improvements, and cost reductions from its own suppliers. "If the customer asks for a price cut that is too high, or if someone is able to supply at a lower price, maybe we have to lose some of our volume." Xu Daquan said.
"We are also under great cost pressure, and there is not much room for price reduction", another leading Tier1 company in the field of intelligent networking in China also told Gasgoo, "We can only achieve cost reduction through continuous technological innovation, such as higher software integration and higher software architecture efficiency."
Gasgoo Automotive Research Institute believes that the pursuit of cost reduction and efficiency increase by car companies under the pressure of competition and profitability will inevitably be transmitted to upstream supply chain enterprises. Supply chain enterprises are facing pressure from many aspects, such as technological innovation, material design innovation, procurement channel optimization, and production efficiency improvement.
What does this mean for the industry?
"In the past year, the average car price in China has fallen by about 15%." Xu Daquan pointed out, "In February this year, a new price war began again, and the cost reduction of some models was about 20% to 30%. "In this context, there is a question that needs to be discussed, what is the reason why the price war cannot be stopped?
At this stage, there are still too many car brands in the domestic market. In the mature markets of European and American countries, there will never be a situation where dozens of car companies compete with each other, but in China, it is currently experiencing a market melee of dozens of car companies. According to the relevant data compiled by Gasgoo, in 2023, a total of 77 car companies will produce and sell in the Chinese market, 129 passenger car brands, and a total of 820 models on sale.
"Until the competition stabilizes, the pressure to reduce prices will always exist, and everyone will continue to roll up." This is Xu Daquan's basic judgment on the subsequent trend of the domestic automobile market. As the terminal preferential efforts continue to escalate, the coverage of the price war is becoming wider and wider, and the reshaping of the market competition pattern and even the process of survival of the fittest are likely to be fully accelerated.
At present, the impact of the price war on the industry has actually been very obvious in many places.
First of all, when price becomes the main competitive factor in the auto market, product homogenization becomes more and more serious, which becomes an inevitable result.
Secondly, the price war is the root cause of the price chaos in the current domestic auto market, the original price system collapsed, and the head new energy vehicle companies began to dominate the pricing power of the auto market price system, which is also a significant change in the industry.
In addition, Gasgoo believes that the price war has also led to the continuous deterioration of the competitive environment for car companies. It is mainly reflected in the following aspects: the intensive release of new cars, the acceleration of product updates and iterations, and the continuous improvement of intelligent, diversified and personalized demand are accelerating the reshaping of the competition pattern of the auto market. The profitability of car companies is constantly being squeezed, and the risk of shutting down and turning around marginal enterprises with weak profitability has intensified.
In terms of market structure, there are also some significant changes, mainly reflected in the increasingly obvious competition between new energy vehicles and fuel vehicles. The price of new energy products continues to fall, especially in the A-grade and B-grade segments, and the penetration of new energy will accelerate.
At the same time, the price of the B-grade market will further decline, and the characteristics of technology equality will be more obvious. The price of B-class cars is expected to drop to the current price range of A-class cars, and the B-class market may usher in more high-end configurations, and there will be more and more low-cost and high-end models. In particular, the adoption of configurations with strong scale effects in terms of cost, such as high-level autonomous driving, air suspension, and advanced in-vehicle systems, will be accelerated.
The price war in the current round of the car market has been fought intermittently for more than a year, and there is no sign of an end in sight. On the bright side, the price war has indeed accelerated the process of the knockout of the auto market, and in this process, there will be more competition in which "good money drives out bad money". However, the long-term continuation of the price war is really hitting the entire industry, and if the entire industry is caught in the trap of price competition, rather than working higher comprehensive product strength, in fact, it will not be a good thing for upstream and downstream enterprises, consumers, and the development of the industry.