Intense Competition Redefining the Global Electric Vehicle Market

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A thrilling "life and death race" is unfolding in the world's biggest electric vehicle (EV) market.

Chinese EV manufacturers are showcasing their latest models at Auto China in Beijing, starting on Thursday. These companies have received significant government support for years, helping some to expand globally. For instance, BYD is now in competition with Tesla for dominance in the battery electric vehicle market.

Despite the support, over 200 EV manufacturers in China are facing a challenge of oversupply. Experts are forecasting that many smaller companies may not be able to survive in the highly competitive industry.

Challenges in China, such as a brutal price war and slowing sales in a weakening economy, have led some global automakers to retreat. Additionally, the enthusiasm for electric vehicles (EVs) is decreasing in other markets globally.

According to Mark Rainford, an automotive industry commentator in Shanghai, China's EV industry is expected to continue growing. However, not every player in the industry today will succeed in the long run.

Chinese officials have acknowledged that carmakers will face tough challenges in the coming months and will need to be resilient. The National Development and Reform Commission (NDRC), China's top economic planner, has warned that competition in the new energy vehicle (NEV) industry will be intense in 2024.

Last year, more than a dozen passenger carmakers disappeared from the market, as reported by the China Passenger Car Association. Among them were popular EV brands like WM Motor, Byton, Aiways, and Levdeo.

In addition, some global automakers have had to make changes to their businesses or cease operations. For instance, Mitsubishi Motors announced in October that it would stop producing cars at its joint venture in China. Other companies like Honda, Hyundai, and Ford have also implemented cost-cutting measures such as layoffs and factory sales, according to stock exchange filings and state media reports.

Richard Yu, CEO of Huawei’s consumer business division, predicted last June that by 2030, China may only have fewer than five major EV players. Huawei has teamed up with various automakers to manufacture EVs.

What challenges are faced by both local and foreign players in the industry, and what does the future hold for EV manufacturers in China, the world's second largest economy?

A bruising price war

Aggressive price cuts are a major headache.

In October 2022, the price war started when Tesla (TSLA) reduced prices for its Model 3 and Model Y cars in China by up to 9%. Three months later, they lowered prices once more, which led to a series of price cuts across the country's auto industry in 2023, affecting gasoline car manufacturers.

The competition became even fiercer.

Tesla recently reduced the starting prices of four models in mainland China by 14,000 yuan ($1,932). This move was made in response to the competitive market in China, where Xpeng and Li Auto, two of the fastest-growing car brands, also offered discounts and subsidies to attract buyers.

According to Rainford, a market analyst, the price war among these car companies is expected to continue throughout the year. However, it may be difficult for prices to decrease significantly further given the current discounts already being offered.

Chinese car buyers now have access to very attractive deals, but some brands may struggle to maintain these discounts in the long run. "They will need strong financial resources and effective marketing strategies to stay competitive," he explained.

The profitability of China's auto industry has been negatively impacted by price cuts. According to data from the China Association of Auto Manufacturers (CAAM), the average profit margin dropped to 5% in 2023, the lowest in at least ten years.

One of the contributing factors to this decline in profitability is the high number of players in the industry.

Overcrowding is another major issue plaguing China’s EV industry.

The NDRC expects more than 110 new NEV models to be launched this year, adding to a flood of EVs hitting the market.

In 2024, BYD, Huawei’s Aito, and Li Auto are all looking to boost their deliveries by 2.3 million vehicles, as per the NDRC. However, the overall market demand is only expected to rise by 2.1 million cars.

According to the NDRC, this means that the market will experience an oversupply situation for an extended period.

More companies are now entering the crowded market.

Last month, Xiaomi, a Chinese smartphone brand, introduced its electric car, the SU7 sedan. CEO Lei Jun aims to compete with Tesla and Porsche by offering a new premium car starting at just 215,900 yuan ($29,794).

FILE PHOTO: Visitors film around Xiaomi's first electric vehicle, the SU7, displayed at an event in Beijing, China December 28, 2023. REUTERS/Florence Lo/File Photo

FILE PHOTO: Visitors film around Xiaomi's first electric vehicle, the SU7, displayed at an event in Beijing, China December 28, 2023. REUTERS/Florence Lo/File Photo

Florence Lo/Reuters

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China’s Xiaomi is now entering the competitive electric vehicle market to compete with Tesla. Last November, Meizu, a smartphone manufacturer, revealed its plans to collaborate with Geely Auto and introduce its debut electric vehicle, the Meizu DreamCar MX, by 2024.

In the same month, Huawei unveiled its first electric sedan, the Luxeed S7, which was created in collaboration with Chery Auto to compete with Tesla's Model S.

The China Association of Automobile Manufacturers (CAAM) has predicted that the total sales of passenger cars in the country will reach approximately 26.8 million vehicles by 2024. However, the collective sales goals set by leading manufacturers have already surpassed 30 million units.

Companies facing an oversupply must accelerate sales, which may involve increasing exports. However, this could potentially lead to conflicts with important trade partners. If sales are not ramped up, cash flow issues may arise, putting the manufacturers at risk of a crisis. The competition may also intensify for foreign companies.

BYD briefly overtook Tesla as the world's top-selling EV brand in the fourth quarter of last year. BYD's entry-level model is priced at just under $10,000 in China, while Tesla's cheapest model, the Model 3, now starts at 231,900 yuan ($32,002) after a recent price drop.

According to Rainford, the quality of Chinese cars has improved significantly, with a focus on automation and innovation. This shift has put pressure on traditional foreign car manufacturers as more Chinese brands enter the global market.

The knockout round

As competition becomes more intense, many carmakers will perish in the coming months, according to China’s EV company CEOs.

Gan Jiayue, the CEO of Geely Auto, mentioned in March that as we head into 2024, the knockout round of China's auto industry will kick off, leading to a period of consolidation and reshuffling.

In line with this, Wang Chuanfu, the chairman of BYD, also anticipated a "brutal elimination round" in the industry.

China's electric vehicle (EV) industry is currently going through a period of cyclical adjustment, according to a speaker at a forum in Beijing. It is crucial for companies to establish economies of scale and brand advantages quickly to stay competitive.

Industry insiders anticipate that as the industry continues to consolidate, more small-to-medium-sized companies may face the risk of being eliminated.

Yin Tongyue, the chairman of Chery Auto, believes that electric vehicle (EV) makers are in a fierce competition for survival. He mentioned recently that Chery Auto plans to launch 39 new pure electric and hybrid models by 2024 and 2025 in order to secure a leading spot in the EV market.

However, for the companies that manage to survive, there is still hope for a brighter future ahead.

In 2024, it is predicted that electric cars could make up 45% of the market share in China. This increase is expected due to competition between car manufacturers, decreasing prices of both batteries and electric cars, and continued support from government policies, as reported by the International Energy Agency.

Editor's P/S:

The Chinese electric vehicle (EV) industry is poised for a major shakeup, with intense competition, oversupply, and a price war that has driven down profit margins. Despite government support, many smaller companies are likely to be squeezed out of the market, leaving only a handful of major players by 2030. This consolidation will have implications not only for the Chinese EV industry but also for global automakers, who will face increased competition from Chinese brands.

The article highlights the challenges facing both local and foreign players in the Chinese EV industry, and the strategies they are adopting to survive. Chinese car buyers are now benefiting from attractive deals, but some brands may struggle to maintain these discounts in the long run. The oversupply situation is likely to put pressure on manufacturers to accelerate sales, which could lead to conflicts with important trade partners. Foreign companies will also face increased competition from Chinese brands, which have improved their quality and innovation in recent years. It remains to be seen which companies will emerge victorious from this competitive landscape, but the Chinese EV industry is undoubtedly set for a period of major restructuring in the coming years.