China’s Electric Vehicle Market Intensifies Competition with Deep Discounts
Industry giant BYD has announced significant discounts of up to 30% on several of its lower-end battery-only and hybrid models, escalating competition in China’s electric car market. This move has sent shockwaves through the industry, with smaller automakers expressing concern about their ability to compete.
The average car price in China has fallen by around 19% over the past two years to approximately 165,000 yuan ($22,900). According to Ying Wang, Fitch managing director, APAC Corporate ratings, the double-digit growth in new energy vehicle sales is primarily at the expense of internal combustion engine cars rather than indicating market expansion.
“BYD’s action this time has made the industry rather nervous,” said Zhong Shi, an analyst with the China Automobile Dealers Association. “The industry is in a state of relatively large shock.”
The price war in China’s electric vehicle market has been ongoing for two years, initially fueled by Tesla. However, traditional automakers, including state-owned enterprises, are now feeling significant pressure as new energy vehicles account for about half of new passenger cars sold.
Morgan Stanley’s Chief China Economist Robin Xing noted that the latest car price competition highlights the supply-demand imbalance driving deflation. “There is growing rhetoric about the need for rebalancing to more consumption, but recent developments suggest the old supply-driven model remains intact.”
Price Trends and Market Dynamics
- Average car retail price in China has dropped 19% over two years
- Hybrid/range-extension vehicles saw 27% price cuts
- Battery-only cars experienced 21% price reduction
- Traditional fuel-powered cars had below-average 18% price cut
In contrast, the average new car price in the U.S. was $48,699 in April, up nearly 1% from two years earlier. The average electric car price was even higher at $59,255.
Industry Implications and Future Outlook
Ying Wang expects automakers to continue using price cuts to gain market share in China. Another strategy could be including advanced features like driver-assist systems for free.
The intense competition has raised concerns about the impact on other countries’ auto industries. The European Union has imposed tariffs on China-made electric cars, while the U.S. has imposed 100% duties. Despite these measures, BYD managed to outsell Tesla in Europe for the first time in April.
As China’s top leaders call for efforts to address non-productive business competition, the massive production of lower-cost electric cars and subsequent expansion into other markets continue to worry global industry stakeholders.
