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China: End of the Price War?

Tesla and China's leading automakers are said to have committed, according to Automotive News China, to maintaining fair competition and avoiding "abnormal prices" in the world's largest market for electric vehicles.

China is stonewalling: The government asked car manufacturers to come to the table to end the price war. | Photo: Hanson Lu/Unsplash
China is stonewalling: The government asked car manufacturers to come to the table to end the price war. | Photo: Hanson Lu/Unsplash
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A possible end to the price war, which Tesla sparked with massive price cuts, is on the horizon in China. On July 6th, executives from 16 companies attended a signing ceremony at the China Auto Forum in Shanghai, confirming and committing to adhere to four points outlined in the commitment statement. Participants included BYD Co, Nio Inc, Xpeng Inc, Geely, and Chery Automobile Co, while Tesla was the only foreign brand present. Brief recap: At the end of 2022, Tesla began drastically lowering prices not only in China, prompting other major brands to also offer significant discounts starting at the beginning of 2023. The likely background was declining sales at Tesla, but also at some other brands.

The Chinese government wants to popularize EVs in rural areas

The weak demand in China was partly due to the lingering effects of Covid, but also to the expectation that vehicle prices would continue to fall. The resulting inventory build-up paved the way for discounts and heightened concerns from the Chinese government, which is currently running a campaign to promote the adoption of electric vehicles in rural areas, alongside other measures to revive the auto industry and consumption. According to Communist Party official Miao Wei, the Ministry of Industry and Information Technology instructed the China Association of Automobile Manufacturers to bring the 16 companies together to sign the corresponding agreement. The companies also promised to contribute to stabilizing growth and avoiding risks.

China has also become a displacement market

Among the electric car manufacturers, Tesla and BYD were at the forefront of the price war, because: China has also become a displacement market. As early as March 2023, according to Automotive News China, some models manufactured at Tesla’s Shanghai plant were 14 percent cheaper than in 2022. The massive price cuts angered customers - Tesla owners complained in stores and sales centers, with some even ransacking a so-called Experience Center.

Prices are easing – at a lower level

Even before the signing on Thursday, there were signs of a slowdown in the trend. The cuts were becoming less aggressive, and in some cases, prices were even adjusted upwards as sales picked up again. Deliveries from Tesla’s Shanghai plant rose by almost 20 percent year-on-year in June, and deliveries from Chinese automakers such as BYD and Li Auto Inc. also increased significantly. Authorities estimate that sales of electric and electrified vehicles rose by 30 percent last month compared to June 2022. Cui Dongshu, secretary general of the China Passenger Car Association, noted:

“The agreement comes at a time when the price war had already come to a halt.”

According to Automotive News China, the following key points were agreed upon, but they are not binding:

It concerns the "compliance with industry rules and regulations, regulation of marketing activities, maintenance of fair competition and no disruption of fair competition through abnormal prices." Marketing and advertising should not be exaggerated, and no false statements should be made to attract attention or gain new customers. Additionally, "quality should be prioritized" to "improve life with high-quality products and services."

It also involved the "promotion of socialist core values," an "active perception of social responsibility." Furthermore, the paper calls for assuming the "great responsibility of maintaining steady growth," and they also agreed on "strengthening confidence and avoiding risks" – which is very openly and floridly formulated, leaving many loopholes.

The companies involved were: FAW Group Group Co, BAIC Group, JAC Motors, Dongfeng Motor Co, GAC Group, SAIC Motor Corp, Sinotruk, Great Wall Motor Co, Chongqing Changan Automobile Co and Chery Automobile Co.

"The market has likely already anticipated the end of the price war, as we have observed quite strong demand for electric vehicles in recent months," said Joanna Chen, analyst at Bloomberg Intelligence, adding she hopes:

“The automakers will increasingly rely on new models to drive sales in the future.”

Which is why Tesla is also working on a new Model 3...

What does this mean?

Unfortunately, Elon Musk is no longer the world-improver he once set out to be: He is, after all, interested in market power and volume, often boasting sales figures higher than many large car manufacturers worldwide. This is why he often instigates a price war, as his models are indeed extremely cost-optimized in production. In China, some manufacturers followed suit until the state, which is omnipresent there, deemed it too ruinous. However, European manufacturers were excluded from this – manufacturers whom Elon Musk would also like to displace as many as possible. Regardless, the price structure of many brands has become somewhat disjointed. And battery electric vehicles in Europe have become unaffordable for many ordinary citizens. However, there are signals that the market could stabilize at a tolerable level. But the action in China clearly shows: Those who don't go along, won't last!

Translated automatically from German.
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