The China Association of Automobile Manufacturers (CAAM) issued a “stern warning” for Chinese carmakers for fueling a brutal and still on-going price war. This came out of a report from Agence France Presse (AFP).
Although CAAM didn’t single out any automotive brand, the statement did indicate a May 23 date—the same day leading New Energy Vehicle (NEV) manufacturer BYD announced yet another round of big trade-in discounts on nearly two dozen models and offering discounts of up to 34 percent.
“Since May 23, a certain automaker has taken the lead in launching a substantial price drop campaign… triggering a new round of ‘price war’ panic,” the China Association of Automobile Manufacturers (CAAM) said in a statement.
CAAM warned that such “disorderly” competition would “exacerbate harmful rivalry” and hurt profit.
Days after BYD announced the promotion, Chinese EV startup Leapmotor did the same, as did Geely Auto.
According to the AFP report, the continued price war is triggering growing domestic criticism against Chinese car brands since they’ve been triggering a “involution”—a popular tag used to describe the race to outcompete that ends up nowhere.
The price war has even led to carmakers in China resorting to a practice called, “zero mileage cars” to move inventory. These zero-mileage cars are essentially new cars with no or little mileage that appear on the resale market and come with substantial discounts despite not reaching the end consumer in the first place.
Regardless, the price cuts have had a positive effect on BYD’s sales. Foot traffic to BYD showrooms surged 30 to 40 percent week-on-week. As a result, BYD managed to move 382,476 units last month. Out of this number, 204,369 were BEVs, while 172,561 were PHEVs.
Year-to-date, BYD has now sold 1.76 million cars and light trucks. Its full year target is 5.5 million vehicles.
On the flipside, the continued squeeze is putting dealers’ cash flows under tremendous pressure. Just recently, Qiancheng Holdings, which ran at least BYD stores in the eastern province of Shandong, has fallen into difficulties and was forced to either desert or close around 20 of them.
BYD says they’re currently providing support to Qiancheng Holdings.
The Chinese government has poured vast state funds into the electric vehicle sector, supporting the development and production of less polluting battery-powered vehicles. But China’s automakers association on Saturday warned its goliaths to play fair.
“There are no winners in a ‘price war’, let alone a future,” it said in a statement, vowing to safeguard consumers and promote high-quality development of the industry.
It proposed remedies that would require auto companies adhere to the principle of fair competition and larger players refrain from market monopolies.
“Apart from reducing the price of goods according to law, enterprises shall not dump goods at prices below cost,” it added.
Byd strategy is to sale below cost to decimate comrades/competitors, dominate then later raise prices.
ReplyDeletevery bold strategy. high stakes... can go either way.... can succeed.... can also mean that they die.
DeleteI know you don't buy a car for resale value. But lowering prices will turn off some buyers because it losses desirability used since newer one cost less. They should also protect the interest of those who already bought their vehicle
ReplyDeletePeople will realize how important resale value is when they start seeing massive discounts. you will instantly lose resale value more than the discounts
DeleteWe have to understand that our market is different from the Chinese market. It's a big investment for us in the Philippines so of course we look at resale value but in a country with higher incomes and intense competition people can more easily choose the cheaper car with little to no resale value.
DeleteLet's say we have two comparable cars but priced wildy differently at 1.5m and 500k. Now let's assume that after, what, 5 or more years both owners want to get a new car. Say the 1.5m with great resale value would get you back 1.2m after 5 years and the 500k would be super low at maybe 100k. At the end, yes, you do get more back with the resale value but the barrier of entry/total capital needed is huge compared to the cheaper car. You see this playing out with the Chinese micro cars right now in our market. Maybe the resale value will be non-existent in a few years pero you get a more affordable brand new car (which may even beat more expensive cars in features). For a lot of people with limited budgets, they just want the benefits of a car and a lower barrier of entry is very appealing for them.
Good move by BYD
ReplyDeleteThey priced the Seagull down to USD 8,000! That's around 450k in pesos or half the official dealer price in PH (give or take a few thousands for equipment differences). This warning will only be ignored or paid lip service by the big manufacturers. The smaller players can't compete sustainably with the big boys who are churning out features, tech and models by the hour. They will have to consolidate or close shop, leaving fewer players. That is not yet an immediate concern as there are literally hundreds of them. Consolidation will happen and BYD is just accelerating the process to reach the "WHEN." It is not a question of "IF."
ReplyDeleteAnything that brings a car's price down is good for the consumers.
ReplyDeleteThe discounted seagull in china is below 450k for base model. Ac motors selling it for 900k. Zero import tax for ev but there are cost to import. I wonder will Ac also lower the prices of byd? Or poor buyers today will pay a premium for byd cars
ReplyDeletehighly doubt it. AC will definitely want the windfall. That could even be one of the reasons why it chose BYD in the first place.
Deletecars are depreciating assets.its not an investment that appreciates over time.i see no reason why car companies cannot lower prices.
ReplyDeletein the phil, we have the exact same mentality, cars always increasing in prices. i dont get the point. i am sure when you ask a buyer everyone knows that car will be worth a lot less x years down the road.
BYD wants to kill their fellow China car makers. It is also endangering its own existence. Is BYD an agent of carmakers from other countries? To destroy the Chinese car industry?
ReplyDelete