Shulou(Shulou.com)11/24 Report--

Beijing, March 23 (Xinhua) last year, Tesla fired the first shot to cut prices in China. The price war it launched is expected to reshape the domestic car market and may lead to the closure of some automakers.

Tesla was the first to cut prices in China in October 2022, when Tesla reduced the prices of some models produced in Shanghai factories. Then in January this year, the price war escalated. Another price cut by Tesla has made domestic models as much as 14 per cent cheaper than last year, and some models are nearly 50 per cent cheaper than in the US and Europe.

More than 30 auto companies "entered the war" Tesla's move left competitors no choice but to cut prices, including upstarts in local electric cars such as Xiaopeng and Xilai, as well as leading international brands such as Volkswagen and Mercedes-Benz, who offered discounts of up to 70,000 yuan. Ford's Mach-E electric SUV starts at 209900 yuan, about 1/3 cheaper than in the United States.

Tesla created a disaster for other market participants. " Jochen Siebert, managing director of JSC Automotive, a consultancy, says the company has offices in Shanghai and Stuttgart.

The price cuts of more than 30 car companies in China, according to foreign and domestic media statistics, at least more than 30 automakers have cut prices. The China Association of Automobile Manufacturers on Wednesday called for an end to the price war, saying it was not a long-term solution to slowing sales and overstocking. The agency said the industry should "resume normal operations" to ensure healthy development.

Domestic media commented earlier this week that it was inappropriate for local governments to subsidize locally produced cars. For example, Hubei Province and Dongfeng Automobile Group Co., Ltd. reduced the price of the Citroen C6 model by 90,000 yuan, or nearly 40%.

This price war comes at a time when China's auto industry is in a difficult period. The removal of government subsidies for the purchase of electric cars at the end of last year affected sales, and supply chain disruptions hurt the global auto industry. Despite these challenges, retail sales of new energy vehicles, including pure electric and plug-in hybrids, almost doubled last year to 5.67 million, with BYD accounting for about 30 per cent of them. In November last year, Tesla shipped more than 100000 electric cars from Shanghai, setting a monthly record.

Fengwei, CFO of reshuffle Weilai, said in an interview on Wednesday that with the gradual popularity of electric vehicles, the Chinese car market will undergo a "very profound reshuffle". "We need to survive this price war at the beginning of this year, and then we expect the industry to undergo some profound and fundamental consolidation," he said. "it's almost a consensus that there are too many carmakers in China."

Fengwei said that customers are becoming more and more picky and demand is strong. He added that Xilai was confident of achieving its target of selling 250000 electric vehicles this year, more than double the sales in 2022. Zhu Xiaotong, president of Tesla Greater China, said the company's price cuts "generated huge demand".

Electric vehicle sales in China are likely to reach 8.1 million this year, compared with 3.2 million in Europe and 1.9 million in the United States, according to Bloomberg New Energy Finance.

Ford's Mach-E is 1/3 cheaper than in the United States, and competition shows no sign of slowing down. This year alone, China is expected to launch 155 new pure electric and plug-in hybrid models, according to Bernstein, an investment bank. This means that big companies with stronger financial resources are likely to cut prices further.

Mr Siebert of JSC Automotive, a cash-based life-and-death consultancy, said Tesla had "billions of dollars available for price reduction purposes, while other companies did not".

In addition to Tesla, BYD also has the ability to make a new round of price cuts, Morgan Stanley analysts wrote in a report on March 19. They said that the price war launched by Tesla will come faster and more serious than expected and will "accelerate the market reshuffle".

According to Morgan Stanley, the balance sheets of China's three new car makers, Lulai Motor, Xiaopeng Motor and ideal Automobile, are also strong enough to be self-financing in the next 18 months.

Tesla's share price is up 60 per cent this year. "compared with gasoline cars, price cuts make electric cars more attractive, further squeezing traditional carmakers." Yang Jing, director of Chinese corporate research at Fitch rating, said in an interview. In addition, she said in a report on March 16 that companies without reliable external financing channels could face "survival challenges" over the next two years.

The stock market reacted differently to the price war. Tesla's share price fell immediately after the company adjusted its pricing, but now it is starting to rise again and far surpasses China's major electric carmakers. Tesla's shares have risen 60 per cent this year, while American depositary receipts for ideal cars are up 15 per cent. Shares of Xilai Motors fell 7% in Hong Kong.

"this brutal situation will continue until mid-2024," said Tule, managing director of Sino Auto Insights, a consultancy. "for some weaker players, it's really a matter of survival."

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