China, the undeniable giant of the global electric vehicle market, is seeing its hegemony falter as sales figures show signs of slowing down in recent months. However, with more than 5 million registrations of purely electric cars in 2023, China still dominated the sector last year.
However, this growth is now threatened by a decline in sales, notably due to fierce competition between national manufacturers.
The electric car market is no longer all rosy
Many Chinese giants in the once-booming electric vehicle industry are now reporting a decline in their sales and revenue. This trend is largely explained by a fierce price war, where Chinese manufacturers seek to seduce buyers with tempting offers. And maybe a little too much at times.
The best example is the number one electric car in China, BYD. Looking at the manufacturer’s results in 2023, we can legitimately wonder if the price war is not reaching its limits. In 2023, BYD had an exceptional year, with its net profits dramatically increasing by more than 80% compared to the previous year. This prosperous period concluded with Tesla overtaking in terms of the total number of electric vehicles sold worldwide during the last quarter of the year.
However, the projections for 2024 are not as promising for BYD. The company reported first-quarter net profit down 47% compared to the fourth quarter of 2023, with plug-in vehicle sales (EV and PHEV combined) falling almost 34% during this period. Despite this slowdown, sales in the first quarter of 2024 increased by 13.4% compared to the same period in 2023.
BYD’s shaky start to the year is attributed to various factors, including Chinese New Year celebrations, which dampened electric vehicle purchases. However, sales picked up in March and remained strong through April. Despite the competitive environment and the slowdown in sales, BYD still recorded a net profit of 10.6% in the first quarter, with a 4% increase in its turnover.
How far can Chinese manufacturers lower their prices?
BYD was dethroned in the first quarter of 2024 by Tesla, which regained the title of the world’s leading seller of electric vehicles. Tesla isn’t the only automaker aggressively lowering prices to attract buyers. BYD also reduced the price of its plug-in models by 5 to 20% in February to convince buyers not to opt for a thermal vehicle and, above all, to be cheaper or more competitive than the competition.
But according to a report from Goldman Sachs cited by the media South China Morning Post, the price war could continue until the end of 2024, pushing the electric vehicle segment towards negative profitability.
Indeed, the report states that due to an average drop in electric vehicle prices of 21,000 yuan (around $2,900 at current exchange rates) across the sector (around 11% of their value on average ), the overall profit of electric vehicles fell from 2,100 yuan (about $290) to a negative 1,600 yuan (about $220) in July 2023.
What’s the point of losing money in the short term?
Generally speaking, electric car manufacturers losing money with each car sold is not uncommon, quite the contrary. Some manufacturers even lose several tens of thousands of euros for each car sold, but this is part of a more global strategy.
The boss of Xiaomi, Lei Jun, who has just launched the new SU7 electric sedan at an unbeatable price, goes even further by announcing that “Xiaomi is losing money with these tariffs, but we must be able to bear the losses”. Lei Jun recognizes that in the field of 100% electric cars, “apart from Tesla, I don’t see who is still making money“.
Chinese manufacturers are generally adopting the same strategy as that of the smartphone market a few years ago, that is to say selling at a loss for a few years, time to dry up the competitionthen increase prices (and margins) little by little, to finally make money with electric cars.
Other companies in the field are trying to do the same thing, but with immense debts, but not all of them will survive due to lack of cash flow.
