Chinese Carmakers and the Struggle to Stabilize Prices
Chinese carmakers have been cautious in offering steep discounts, aligning with Beijing's efforts to safeguard a crucial industry. However, the prolonged price war within the sector continues to pose challenges, as overcapacity and weak consumer demand for high-ticket items persist.
According to a recent JPMorgan report, the average discount offered by mainland Chinese electric vehicle (EV) and petrol car manufacturers dropped to 16.7% last month, down from an unprecedented 17.4% in June. This slight reduction is seen as a positive sign, but the underlying issues remain unresolved.
Nick Lai, head of auto research in Asia-Pacific at JPMorgan, noted that intense competition—particularly after the Shanghai Auto Show in April—led to record-high discounts of over 17% in May, June, and early July. These figures represent the highest since JPMorgan began tracking pricing trends in China in 2017.
Lai emphasized that the root cause of the challenging price environment is overcapacity. He suggested that patience may be required to achieve a more sustainable and favorable price environment in the long term.
JPMorgan’s data covered 40 foreign and Chinese car brands across 1,000 variants, including imports. In late May, the Chinese government intervened in the automotive market due to concerns that fierce price competition could threaten the EV sector, where mainland companies lead globally.
The Ministry of Industry and Information Technology warned that carmakers initiating price cuts would face penalties, although it did not specify any concrete measures. Since July, many carmakers have started to reduce their discounts in response to Beijing's directives. However, they remain vigilant and may cut prices again to maintain market share, according to car dealers.
Zhao Zhen, a sales director at Shanghai dealer Wan Zhuo Auto, explained that every carmaker wants to stay ahead because overall market demand is stagnant. "Unless the government takes strong actions to prevent price reductions, a new round of discount wars cannot be ruled out," he said.
Among the mainland's 50 or so EV manufacturers, only a few are profitable. BYD, the world's largest player; Li Auto, Tesla's closest competitor in China; and Aito, backed by telecommunications equipment giant Huawei Technologies, are among the few that are turning a profit.
Lai noted that the net profit margin for Chinese carmakers averaged around 4%, compared with 7% to 8% for leading international brands. According to global consultancy AlixPartners, fewer than 10% of EV brands in China were expected to turn a profit in the next five years, as their margins face further pressure from discount wars and chronic overcapacity.
Stephen Dyer, Greater China co-leader and head of Asia automotive practice at AlixPartners, stated that mainland EV manufacturers selling fewer than 1,000 units per month were likely to be pushed out of the market soon.
Only half of the nation's EV production capacity—about 20 million units—was used last year, according to Goldman Sachs. Ding Haifeng, a consultant at Shanghai-based financial advisory firm Integrity, highlighted that Chinese consumers are cautious about making large purchases. They tend to prefer cheaper cars, and big discounts appeal to them.
He added that EVs priced below 100,000 yuan (450,000 baht) and featuring basic self-driving systems and digital cockpits typically sold well because consumers believed they offered value for money.
Despite these challenges, the market is expected to benefit from buyers seeking to take advantage of tax breaks on new-energy vehicle purchases, which will be phased out by year's end. According to a Fitch Ratings report, mainland buyers are currently exempt from sales tax on EV purchases. However, starting in January, consumers will be subject to a 5% tax until the end of 2027, after which the tax will increase to 10%.