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Full-blown price war in China auto market is raising concerns that the auto industry will face radical consolidation.
According to the latest data, there are 169 automakers operating in China, and more than half have less than 0.1% market share. The crowded field is reminiscent of US auro sector in the early 20th century, when more than 100 auromakers competing with bigger auto players such as Ford, before the industry consolidated.
Chinese electric-vehicle giant BYD offered fresh discounts across more than a dozen models. BYD’s moves cut the starting price of its cheapest model, the battery-powered Seagull hatchback, to 55,800 yuan ($7,765), from nearly $10,000. Also Some products produced by other automakers have been reduced from 220,000 yuan to 120,000 yuan in the past few years，which calls into questions that what kind of products can be reduced by 100,000 yuan and still have quality assurance.
The competition in auto industry was getting too heated, even with some companies selling their cars below cost, disrupting fair competition. The most concerning point is the sales of “used cars” that are essentially new cars with zero miles. The tactic is seen as a way for automakers and dealers to hit aggressive sales targets. This growing phenomenon reflects the stress in the auto market which has also strained the industry.
The Hong Kong-listed shares of BYD Co Ltd closed 8.6% lower on Monday, while Geely Auto fell 9.5%. Others, such as Nio 9866.HK and Leapmotor 9863.HK, closed between 3% and 8.5% lower.
An intensifying price war in China auto market has lasted roughly three years, which has stoked fears of long-anticipated shake-out in auto industry. The prolonged price war was harming the automotive supply chain. Some suppliers are at risk of going under pressure from car companies to lower their prices. On the flip side, price cuts, along with other developments, signal a potential tipping point, where weaker players can no longer sustain deepening losses from the downward spiral on prices, which could be the first domino that would finally put pressure on weaker players -- startups like Neta and Polestar -- that have been teetering.Complete digital access to quality Glebors financial topic with expert analysis from industry leaders.
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