Shares of major Chinese automakers, including industry giants BYD, Nio, and Geely, experienced a significant decline on Monday. This sharp drop followed BYD’s announcement of a new wave of aggressive incentives across more than 20 of its models.
Adding to the market’s unease, the CEO of Great Wall Motors issued a stark warning, declaring that the world’s largest automotive industry is in an “unhealthy state” due to intensifying competition and a prolonged price war.
Market Reaction: Automaker Stocks Under Pressure
The immediate impact of BYD’s move and the industry warning was felt across the stock market.
Significant Stock Declines
On Monday, the Hong Kong-listed shares of BYD Co Ltd closed 8.6% lower. This substantial drop reflected investor concerns about thinning profit margins. Geely Auto also saw a sharp fall, with its shares decreasing by 9.5%. Other prominent electric vehicle (EV) manufacturers, such as Nio and Leapmotor, experienced declines ranging from 3% to 8.5%. These widespread losses underscore the pressure on automakers as the competitive landscape in China intensifies.
The Escalating Price War in China’s Auto Sector
China’s automotive market has been locked in a fierce price war for several years, and it continues to escalate.
Deepening Discounts and Premium Features as Standard
Carmakers are relentlessly cutting prices across their model lineups. Furthermore, they are now offering features previously considered premium, such as smart assisted driving systems, as standard or at no additional cost. This strategy is an attempt to capture market share in an increasingly saturated and competitive environment. The constant downward pressure on prices is eroding profitability for many players.
BYD’s Latest Offensive: Trade-In Subsidies
Over the weekend, Chinese electric vehicle powerhouse BYD announced a fresh round of subsidies and incentives for over 20 different models. This initiative aims to stimulate demand and clear inventory. Notably, the starting price of its most affordable model, the pure battery-powered Seagull hatchback, has been reduced to just 55,800 yuan ($7,765).
However, customers must trade in their old cars to qualify for these significant subsidies, as confirmed by a BYD customer service representative. Following BYD’s lead, Geely quickly introduced similar incentives on Monday, indicating a rapid response from competitors in this volatile market.
Industry Warnings: An “Evergrande” Moment for Auto?
Beyond the immediate market reactions, concerns about the long-term health of the Chinese auto industry are growing.
Great Wall Motors CEO’s Stark Warning
On Friday, Wei Jianjun, the chairman of Great Wall Motor, issued a dire warning about the state of the Chinese auto industry. He likened the current situation to the “Evergrande” crisis that plagued China’s property sector. Evergrande, a debt-laden developer, became the epicenter of a severe liquidity crisis. Wei stated that the “Evergrande in the automobile industry already exists,” though it has not yet fully collapsed.
Criticisms of Manufacturer Practices
Wei Jianjun, known as one of the Chinese industry’s most outspoken executives, did not name specific automakers. However, he criticized certain “main manufacturers” for excessively focusing on pursuing market value and inflating their stock prices. He argued that the Chinese electric vehicle industry is in an unhealthy state, marked by heavy financial losses. The prolonged price war is exerting immense pressure on the entire supply chain.
Strain on Suppliers and Quality Concerns
Wei highlighted the severe challenges faced by suppliers, who are struggling to survive. They face ongoing pressure to lower prices and experience delayed payments from carmakers. He also raised serious accusations, suggesting that some carmakers are cutting corners on safety and reliability in pursuit of lower costs. Wei gave a pointed example:
“Some products have been reduced from 220,000 yuan to 120,000 yuan in the past few years. What kind of industrial products can be reduced by 100,000 yuan and still have quality assurance? Well this is absolutely impossible,” he asserted, emphasizing the unsustainability of such drastic price reductions without compromising quality.
Government Scrutiny and Future Outlook
The escalating competition has also caught the attention of Chinese regulators.
Official Warning Against Excessive Competition
Last week, China’s state planner issued a warning against excessive competition in certain industries, including automotive. The agency noted that some firms were even selling below cost, which disrupts fair market competition. The state planner cautioned that it might be forced to take corrective action to stabilize the market.
This regulatory oversight indicates growing concern from Beijing regarding the sustainability and health of its vital auto sector. The current environment suggests a turbulent period ahead for Chinese automakers as they navigate aggressive pricing, supply chain pressures, and potential government intervention.
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