The American manufacturer of electric cars – Elon Musk's Tesla – has unleashed a real price war in the Chinese market, the scale of which is already straining local authorities. The result of the confrontation may be the bankruptcy of several companies that simply cannot dump in order to maintain their market share. Bloomberg writes about this with reference to market participants.
Tesla first announced large-scale discounts on its electric cars in October, the second time in January. As a result of the program, the companies' electric cars are 14% cheaper than last year in the Chinese market, and almost 50% cheaper when compared to the EU and US markets. Discounts from Tesla forced the rest of the market to follow the example of Musk's company. As a result, since the end of 2022, almost all major participants in the Chinese car market have announced their discount programs: from local electric car manufacturers Xpeng Inc. and Nio Inc. to international auto giants like Volkswagen, Mercedes-Benz and Ford. In total, about 30 electric car manufacturers offered their discounts.
"Tesla has created havoc in the market," said Jochen Siebert, managing director of Automotive, whose company has offices in Stuttgart and Shanghai.
The local authorities did not like the price war: on March 22, the China Association of Automobile Manufacturers demanded that companies stop, since in the long term such steps will not contribute to healthy competition and development of the industry. Authorities are urging companies to "return to normal operations." The association also demanded that the regional authorities refuse to provide subsidies for local producers. Similarly, for example, Dongfeng Motor Group, partner of the French brand Citroen, was able to reduce the price of the Citroen C6 by 40,000 yuan, or 40% of its value.
Automakers have been drawn into a price war amid fairly long economic problems caused by a long period of coronavirus restrictions, which has hit demand sharply. In addition, the lockdown has taken its toll on established supply chains, leading to production disruptions and unforeseen losses for companies. However, the crisis did not affect the sphere of electric cars so much: sales of cars powered by alternative energy sources (electric cars + hybrids) doubled in 2022 and reached 5.67 million units. The leader remains the local manufacturer BYD, which accounts for about 30% of the market. But other manufacturers, including Tesla, continue to increase production and sales.
“We need to get through this price war at the beginning of the year and then we expect the industry to experience deep fundamental consolidation. Almost everyone agrees that there are too many automakers in China right now,” Nio chief financial officer Steven Feng told the agency.
Experts admit that the continuation of the price war will inevitably lead to bankruptcy and exit from the market of some manufacturers. Nevertheless, yesterday's startups like Xpeng, Nio and Li Auto will not be affected by such problems. Tesla and other large Western automobile concerns will calmly survive the dumping, and small Chinese companies are most likely to have problems, the agency notes.
Bloomberg estimates the size of the Chinese electric car market in 2023 at about 8.1 million units. This is 2.5 times more than expected in Europe (3.2 million sales at the end of the year) and more than 4 times more than in the US (1.9 million electric cars). Analyst firm Sanford C. Bernstein & Co. predicts that 155 new alternative energy vehicle models will be introduced in China alone in 2023.