"The new round of 'price war' will only further strengthen 'cost reduction'. Before the ideal price reduction, the cost control indicators of each company have already come down, and the pressure is not small. Senior executives personally carry the indicators, and many car companies allocate budgets on a quarterly basis. 'Tightening the waistband' will be one of the key words in 2024." Speaking of the recent new round of 'price war', a brand leader of a car company told China Business News reporter.
At the beginning of 2024, Tesla took the lead in wielding the "price butcher's knife", and Ideal and NIO followed suit with "price reductions". The reporter learned from the interview that although they are all price reductions, the purpose of price reductions is not the same. Tesla's price reduction is aimed at further seizing market share, while Ideal and NIO's price reduction is directly due to the smooth transition of product updates.
"The ideal price reduction is due to product iteration. The ideal L-series products are about to be updated and delivered in March. This is the same pace as the delisting of the ideal ONE before," a car dealer in Shandong told reporters.
"The new round of price cuts at the beginning of 2024 is driven by the competition among car companies for market demand before the Spring Festival, as well as the concession behavior of leading companies in the segmented market towards consumers under the downward trend of upstream component costs," Yang Jing, Director of Fitch Ratings Asia Pacific Corporate Rating, said in an interview with reporters.
The "price war" in 2023 has left many car companies with lingering fear. In 2024, whether the price war will spread to the gasoline vehicle market and whether new energy vehicles will further squeeze into the gasoline vehicle market is still uncertain. However, industry insiders believe that competition among new energy vehicle companies will become more intense in 2024, and competition pressure will be transmitted to the upstream supply chain.
On January 8th, the reporter tracked and reported on the price war in the car market at the end of 2023, and the subsequent press conference will continue to monitor the dynamics of the car market.
Car companies lower prices to seize market share
Recently, the Ideal official announced a price reduction promotion, with the L-series models directly reduced by over 30000 yuan. The starting price of the Ideal L7 has been directly reduced to 286900 yuan, within 300000 yuan for the first time. At the same time as the car price has plummeted, Ideal officially announced that various configurations will be given as a gift when purchasing a car, and the car price will be lower if not selected.
Previously, the ideal of "not lowering prices" was emphasized multiple times. How could there be a sudden "official reduction" this time? It is understood that in the fourth quarter of 2023, Ideal began to transition to product updates by offering discounts. The above dealers pointed out that for car companies, offering discounts in advance for the current model can help smooth the transition after the new model is launched.
However, some industry insiders believe that although the price reduction is related to the facelift, it is also inseparable from the "price reduction" of its competitor Tesla, which aims to achieve an ideal sales target of 800000 vehicles. In 2023, Ideal delivered 376000 vehicles throughout the year, exceeding its target of 300000 vehicles. In 2024, Ideal set a sales target of challenging 800000 vehicles.
Following the ideal, on January 17th, NIO, which also plans to launch its 2024 new model in March, announced a certain discount for the current model. The discount for ET5/ES6/EC6 is 24000 yuan, and the discount for ET7/EC7/ES7/ES8 is 32000 yuan.
"We are now offering discounts for small batches of existing cars because NIO plans to make minor changes to existing models, which is not a generational change." A NIO sales consultant told reporters, "For example, the ET5 is discounted by 24000 yuan, plus' ground subsidies', the discount is close to 30000 yuan. If you want to buy a car, you need to do it as soon as possible because our inventory is limited."
In fact, Tesla was the first to shoulder the price butcher's knife. After multiple price reductions in 2023, Tesla once again launched a price reduction strategy on January 12th.
Tesla officially announced a price reduction for the Tesla Model 3/Y. The new version of Model 3 has decreased from 261400 yuan to 245900 yuan, a decrease of 15500 yuan. The starting price of Model Y has been adjusted to 258900 yuan, a decrease of 7500 yuan.
"In mid December 2023, news spread from Tesla's Shanghai super factory that Tesla would have the latest wave of price reductions and that Tesla would further seize the Chinese market," an industry insider close to Tesla told reporters.
"Tesla hopes to increase sales at lower prices, slow down the development speed of competitors, and may even completely drive some of them out of the market." Mark Schirmer, PR Director of Cox Automotive Research, once commented on Tesla's price reduction.
Yang Jigang, a researcher in the automotive "new four modernizations" industry and partner of Zhixing Strategy, pointed out in an interview with reporters: "In 2024, leading companies in the new energy vehicle industry such as Tesla and Ideal will take the lead in launching a price war with the aim of seizing the opportunity. In the case of relatively leading speed and scale, being the first to lower prices can gain a first mover advantage, forcing competitors to follow their own pace."
"At present, the relatively profitable enterprises in the new energy vehicle industry mainly include BYD, Tesla, and Ideal in New Forces. The main purposes of their price reductions include expanding their scale to amortize costs, accelerating the replacement of gasoline vehicle competitors, and consolidating or expanding their market share in the new energy vehicle market." Yang Jing pointed out.
The elimination round kicked off
The competition between car companies will become more intense, and the industry will stage an elimination race, which is the judgment of many industry insiders for 2024.
Zhang Yongwei, Vice Chairman and Secretary General of the China Electric Vehicle Hundred People Association, pointed out to reporters, "In 2024, the industry competition pattern will enter a period of deep reshaping. The industry reshuffle will accelerate, and some companies will have opportunities for growth, while for some companies, life will be even more difficult. This is the market."
"Car companies with good profitability can lower prices, transmit the pressure of price reduction to unprofitable competitors, or accelerate the elimination of some weak brands, which helps them maintain their market position," Yang Jing said.
In 2023, the production and sales of new energy vehicles exceeded 9 million units. Xu Haidong, Deputy Chief Engineer of the China Association of Automobile Manufacturers, predicts that the sales of new energy vehicles will be around 11.5 million in 2024.
In 2024, it is expected to achieve an increase of 2.5 million new energy vehicles on the basis of 2023. According to the 2024 growth targets recently released by various new energy vehicle companies, the increase of 2.5 million vehicles is not enough for them to compete for.
An industry insider close to a car company told reporters, "The internal information I received is that BYD has set a target of 4.5 million vehicles, while Huawei Wenjie believes that the target should be around 500000 vehicles, with a bottom line of around 300000 vehicles."
Ideal to set a goal of challenging annual sales of 800000 vehicles by 2024, with an increase of 424000 vehicles delivered on the basis of 2023.
Data shows that in 2023, BYD, Ideal, and Wenjie delivered 3.02 million, 376000, and 94400 vehicles respectively. By calculation, the total target delivery volume of the three car companies mentioned above will increase by over 2.3 million vehicles in 2024.
In addition, Xiaopeng, NIO, Zero Run, and a group of traditional car companies have set growth targets for their new energy businesses.
"The competition in the new energy market is far from over, and even leaders like BYD and Tesla dare not say they are 'firmly on the fishing ground'." Yang Jigang said, "BYD aims to achieve 4 to 5 million vehicles this year, and Tesla aims to deliver 2.5 to 3 million vehicles globally. The challenge is not small."
According to a report by Caixin, an industry executive recently listened to the ambitious new energy sales plans of multiple car companies and said, "I believe you all have the opportunity to achieve your goals, but definitely not all at the same time."
It is worth mentioning that the entry of new car making forces represented by Xiaomi has put pressure on many car companies. Xiaomi founder and CEO Lei Jun once said in a media interview, "We have set ambitious goals to achieve a cumulative sales target of 900000 vehicles within three years, in order to fully enter the first tier of automotive manufacturing enterprises."
Huawei and Xiaomi have their own ecosystems and a large fan base, which gives them innate advantages. Meanwhile, in terms of intelligence, Huawei, which made cars before Xiaomi, has already gained a wave of fans with its intelligent driving and HarmonyOS cockpit.
Yang Jigang bluntly said, "No one can guarantee that Huawei and Xiaomi, who have fought halfway, will not overtake in corners. Moreover, top car companies such as Toyota, Volkswagen, and Hyundai are accumulating strength, and their counterattack efforts should not be underestimated."
Upstream suppliers will be under pressure
Many industry insiders evaluate "price wars" as "killing one thousand enemies and self harming eight hundred". In 2023, the financial reports of multiple car companies all reflected the damage to profits caused by the "price war".
"In 2023, the new energy vehicle industry has a market of 9 million vehicles, and overall, the entire industry is still suffering severe losses. Currently, there are approximately 100 domestic and foreign passenger vehicle brands, and only four or five brands are profitable." Recently, Zhu Huarong, Chairman of Changan Automobile, lamented the current situation of the new energy vehicle industry at the 2024 Changan Automobile Global Partnership Conference.
Zhu Huarong did not conceal that Changan's new energy business is currently also in a loss making state. "Chang'an New Energy is currently losing money, and the losses are severe, basically the same for everyone in the industry."
Despite knowing that a "price war" will worsen the already losing new energy business, many car companies have to participate in the battle.
Yang Jigang said, "Scale is a prerequisite for car companies to make profits, and scale itself means expanding market share, which in turn drives cost reduction and efficiency improvement, including the entire industry chain upstream and downstream and supply chain. Scale brings high share, low cost, and sustained profitability, which is the original intention of many car companies launching a 'price war'."
"In such a highly competitive market environment, car companies need to rely on economies of scale and cost reduction to maintain or improve profitability." Yang Jing said, "On the one hand, car companies will pay more attention to creating popular models and enhancing marketing capabilities; on the other hand, car companies will further transfer cost pressure to suppliers."
The analysis organization of Daiwa Securities Group pointed out in the research report that Tesla requires upstream parts suppliers to reduce prices by up to 10%. It believes that Tesla's price reduction action will put pressure on the profit margins of other new energy vehicle companies and have a negative impact on the overall atmosphere of the Chinese automotive industry.
"The pressure will definitely be transmitted downstream to us, and in order to sell the car, the whole car factory will keep pushing down costs," a worker on the car production line told reporters.
However, Zhu Huarong believes that there are still many companies in the automotive industry chain with good profits that should be shared in the context of a "price war". "In the industry chain, (some companies) still have more than ten percent of profits, which is unfair."
"In the past few years, driven by capital, the capacity of the new energy supply chain has continued to expand, providing conditions for the cost decline of the supply chain." Yang Jing suggested, "In high investment or heavy asset areas such as charging and swapping networks and intelligent driving technology, the vertical and horizontal connection between car companies and suppliers will help to share costs."