Chinese EV Makers Struggle As Overcapacity And Discounts Squeeze Profits

Electric vehicle (EV) manufacturers in China have slashed prices earlier than expected, driven by intense competition and overcapacity challenges that jeopardise the financial stability of many carmakers in an industry facing a downward price spiral.

The looming expiration of a government subsidy at the end of the year is expected to intensify the financial pressures on smaller EV manufacturers, according to industry analysts.

“Every auto brand understands that it is crucial to retain their market share in 2025 due to an escalation in price competition,” Eric Han, senior manager at Suolei, a Shanghai-based advisory firm, was quoted as saying by SCMP.

“Most of the companies will have to offer discounts to survive the price war," Han added.

BYD, the world’s leading EV assembler, announced earlier this week that it would cut the price of its Sealion 05 hybrid SUV by 11.5 per cent, bringing it down to 99,800 yuan ($13,673 or Rs 11.67 lakh).

The move aims to attract customers ahead of the Lunar New Year holiday, with the promotion running until 26 January.

Tesla also reduced the price of its Model Y SUV on the Chinese mainland this week, offering a 10,000 yuan (Rs 1.16 lakh) discount.

With a base price of 249,900 yuan (Rs 29.23 lakh), this promotion reflects a 4 per cent reduction.

Tian Maowei, a sales manager at Yiyou Auto Service in Shanghai, said taht the top Chinese EV players' low-price strategy will be followed by their smaller rivals because they will lose customers if they keep prices unchanged.

“Nowadays, middle-income consumers are more price conscious, as they are concerned about pay cuts in a slowing economy," Maowei added.

The current 20,000 yuan (Rs 2.63 lakh) subsidy provided by Beijing to EV buyers for replacement purposes is set to expire on 31 December.

According to experts, the expiration of government subsidies would likely lead to a decline in vehicle deliveries across the Chinese mainland, the world’s largest market for autos and EVs.

He noted that car sales may have peaked this year, spurred by modest growth linked to the subsidy.

Passenger vehicle sales in China rose 4.7 per cent year-on-year in the first 11 months of 2024, reaching 20.26 million units, as reported by the China Passenger Car Association (CPCA).

From January to November 2024, 195 vehicle models, encompassing petrol-powered, pure electric, and hybrid cars, saw price reductions, surpassing the 150 models discounted in 2023, according to CPCA data.

CPCA data revealed that the average price of a pure electric car decreased by 10 per cent, equivalent to 20,000 yuan (Rs 3.33 lakh), while hybrid vehicles saw a 4.3 per cent reduction, saving buyers 10,500 yuan (Rs 1.22 lakh) per unit.

The last significant round of discounts began in February 2024 when BYD reduced prices on almost all its vehicles by 5 per cent to 20 per cent.

Over the following two months, at least 50 models across various brands implemented average price cuts of 10 per cent.

By July, however, certain carmakers, including BMW, opted to exit the intense price competition.

Industry data indicates that out of approximately 50 major EV producers in mainland China, only BYD, Li Auto, and Huawei Technologies-backed Aito have achieved profitability.

China’s EV industry has an annual production capacity of about 20.2 million units, according to Goldman Sachs.

The China Association of Automobile Manufacturers projects that EV deliveries on the mainland will surpass 11 million units this year, utilising approximately 55 per cent of the total capacity, a figure nearly unchanged from last year.

William Li, co-founder and CEO of Nio, a Shanghai-based premium EV manufacturer, emphasised last week that automakers should prioritise maintaining profit margins rather than joining the price war recklessly.

Nio has refrained from participating in the price cuts this year, keeping its vehicle prices largely stable.

Nio’s vehicle margin, representing the difference between the selling price and tangible costs like raw materials, labor, and logistics, rose to 13.1 per cent in Q3 2024, compared to 11 per cent a year prior and 12.2 per cent in the preceding quarter ending June.

Nio reported a net loss of 5.1 billion yuan between July and September, marking an 11 per cent increase from the same period last year.

Li said that the company aims to achieve breakeven by 2026.

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