In China, world's biggest car market, deadly discount deals deliver delight
Anyone shopping for a new car in China isin the right place at the right time. The world’s largest auto market is in the midst of a heated price war, and the situation is only intensifying.
In the first quarter, a total of 649 variants of passenger cars, or around 20% of all vehicles on the market, saw transaction price drops of more than 10,000 yuan ($1,500), analysis based on information compiled by research provider China Auto Market show.
Back in February, that percentage was just 12% of all car versions, and it was as small as 6% this time last year. (China Auto Market collects more than 3,000 car model variantsin its data set each month that were examined by Bloomberg.)
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As competition intensifies, both domestic and international automakers are aggressively cutting prices to outpace rivals. Some companies initiated price reductions quickly off their own bats as they saw what was happening around them, while others have been able to piggyback off incentives offered by local governments as part of broader economic stimulus packages.
In March, for example, government subsidies in Hubei province in central China, together with discounts from state-backed Dongfeng Motor Group Co., slashed the price of the Citroen C6 by more than 40%.
Tesla Inc., which over the weekend said it will build a large new battery factory in Shanghai, further cementing China’s place atop the global energy storage supply chain, arguably kicked all this off when it cut prices of its locally built models by as much as 14% in early 2023.
But despite an initial lead regarding the degree of price cuts, the US automaker has now fallen behind in terms of who’s offering the steepest discounts — an indication of the extreme pressure affecting the entire industry, from carmakers through to dealerships.
Toyota Motor Corp.’s bZ4X, an electric sports utility vehicle, has recorded the most significant sustained price drop this year in China, the data shows. The model’s 400 kilometer range Elite JOY version had a transactional price of 139,380 yuan in March, 30% down from 199,800 yuan in December.
German premium makers Audi and BMW are also offering generous discounts, particularly on their electric models. Really, it’s a full-blown price war spanning gasoline vehicles to electric ones and ensnaring new-energy upstarts as much as it is legacy automakers.
While it’s not unusual for carmakers and dealers to give out incentives to clear older model inventory, it’s thequarter’s exceptional intensity that’s sparked social media discussion and raised concerns among analysts about shrinking profit margins, not to mention potential compromises to quality and innovation. The long-term sustainability of some automakers is even coming into question. Tesla’s shares plunged 6.1% earlier this month on concern that significant price cuts early this year have only yielded an incremental gain in vehicle sales.
China’s Association of Automobile Manufacturers, meanwhile, has called for an end to the price war, saying it isn’t a long-term solution to a slowdown in sales and accumulation of stock. The industry body has urged a “return to normal operation" to ensure the auto market’s healthy development.
What’s worrying is that it remains unclear whether some of the carmakers that have desperately placed their hopes on price cuts and cash incentives to spur sales actually have an exit plan. Is this just a race to the bottom and let the bankrupt carcasses pile up? There’s also the concern that spoiled customers may resist a return to normal pricing, which may result in a distorted market.
Some consolidation in China’s overheated car market is inevitable, and probably a good thing. But price cuts continuing at the pace they are arguably isn’t good for anyone, no matter how happy it may make shoppers today.
