The price war in China's auto market has stalled, and the slow recovery pace has become a trend

My car wheels

2024-05-15 11:49Posted in Shanghai Automotive Creators

After a period of price competition, there seem to be signs of a ceasefire in the "price war" in the automotive industry.

The Bureau of Statistics has just released the latest data, signaling a rebound in car prices. In April, the prices of fuel cars and new energy cars fell by 4.8% and 6.5% respectively, and the decline narrowed. It can be seen that the competitive environment of the automotive industry has improved, prices have begun to recover, and the price war has slowed down in stages, which is also confirmed by the recent new cars on the market.

Since the beginning of last year, the intensity of the price war in the auto market has been obvious to all. However, with the release of the financial reports of domestic car companies, we can see the tragedy of the price war, and the "post-war trauma" of China's auto market is constantly emerging. However, judging from the data of the Bureau of Statistics and the rhythm of new cars of car companies, the price war is showing a trend of ebbing, and the firepower has eased compared with last year. After more than a year of fierce war, is the price war in the auto industry over?

The "price war" has never been lost, and the losses have not stopped?

2023 has just begun, and Tesla has taken the lead in starting the price war. In March, Hubei Province set off the strongest wave of car purchase discounts in history, leading the war from the field of electric vehicles to the field of fuel vehicles, and since then, the price war in China's auto market has never stopped. Stimulated by huge discounts, the auto market has also seen hot sales, and domestic production and sales will both exceed 30 million units for the first time in 2023, hitting a record high.

Although the car market looks like a thriving scene, in fact, in this involution, most of the players have the same consequences - killing 1,000 enemies and losing 800. This unprecedented price war has put tremendous pressure on the profitability of the entire industry. According to incomplete statistics, 15 listed car companies will all achieve revenue growth in 2023, but as many as 9 of them will fall into a situation of increasing revenue but not increasing profits.

In the first quarter of 2024, the general environment of the auto market has not changed, and the price war has even intensified. Judging from the eight listed vehicle companies that have announced their first-quarter financial reports, most of them have basically shown a year-on-year increase in sales, but only four have achieved year-on-year growth in net profit, and most of them have seen a sharp decline in net profit.

The financial reports of domestic car companies prove that there will be no winners in the industry when the whole industry rolls up prices. The original intention of the price war is to achieve small profits but quick turnover, and ultimately achieve overall revenue and profit growth, but judging from the performance of listed car companies, the goal of the price war does not seem to have been achieved. Every penny dropped by car companies is eroding the company's profits.

Because of this, car companies can't support it anymore. If the price war continues, most car companies will fall into the trap of selling more and losing money. In particular, the profits of Toyota's car companies crushed the sum of 12 domestic car companies, which is worthy of reflection by independent brands. Considering that there is only a single month of price change data, it remains to be seen whether the price decline will continue. However, hopefully, industry participants should be aware that losses are unsustainable.

The price war that has lasted for a long time has made the industry "scarred"

There is a saying in the industry, "Only when making a profit can a business continue to operate." ”

The price war is a headache for Chinese car companies, and most of them are sticking to it. For loss-making car companies, as long as the price war does not end, the situation of "losing money and making money" will continue and will continue to deteriorate. This phenomenon is not healthy, but the competition has reached this stage, and there seems to be no other way. Because in the critical period of reshuffling, if everyone does not seize the fleeting market share as quickly as possible, once they are squeezed off the table, it will be difficult to serve again.

In the competitive market environment, car companies may not want to cut prices, but they also do not want to leave the "table". Compared with before, because the mainstream players in the market are joint venture brands, the price war in the automotive industry will not break through the bottom line, and vicious competition will rarely occur. However, with the rise of independent brands and the forcible entry of new forces, the competition pattern of the industry princes has determined that it is difficult for the automotive industry to get rid of the price war.

Judging from the current situation, the bullet of the price war will fly for a while, the low-price game of the automobile industry will continue, and the price war and the competition for market share are still the key words of competition. Although it is not realistic to completely "end the price war" in the short term, it is clear that a single price war can no longer become a long-term competitive model that Chinese automakers rely on. For those car companies that "lose money and make money", if the positive profit cycle is not guaranteed, the window period to stay on the "table" will be shorter and shorter.

Therefore, although the price war can achieve certain results in the short term, it may pay a greater price. Of course, car companies are certainly going to cut prices for consumers, but if this short-term profit affects the sustainable development of China's auto industry, no one wants to see it. In short, this price war with no winners should end as soon as possible.

Whether the price war will stop this year remains to be verified, but from the perspective of car companies, dealers and supply chain companies, the losses caused by the price war are obvious. Although the price decline has narrowed at this stage, it has not yet returned to benign development, and the market is still in the adjustment period. With the price bottoming out, can the "involution" of the automotive industry stop there? Only time will tell.

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