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In January 2023, Tesla China announced a price reduction of 20,000 to 48,000 yuan for its Model 3 and Model Y models, firing the first shot in the domestic automobile price war.

Since then, the price war has continued to spread, with many new energy vehicle brands following suit in price cuts, and some traditional fuel vehicle brands also beginning to adjust prices.

The price war among automakers will continue in 2024. According to Cui Dongshu, secretary general of the China Passenger Car Association, as of March, the price reduction of passenger cars has exceeded 60% of the whole year of 2023.

Red Star Capital Bureau noticed that in the face of industry involution, the attitudes of automakers are divided into two camps. One camp of automakers actively responds, believing that involution is the inevitable result of industry competition; the other camp of automakers conservatively resists, believing that endless involution will compress the survival space of enterprises.

What is the current situation of involution in the auto industry? What impact has it brought to the industry? How will it develop in the future? Such questions have begun to attract the attention and discussion of users.

first part:

The "price war" will continue in 2024

On January 1, 2024, Tesla once again took the lead in announcing a new price adjustment, subsidizing the insurance cost of the Model 3 rear-wheel drive vehicle by 6,000 yuan, thus kicking off the 2024 car price war.

Since then, domestic independent automobile brands, traditional luxury automobile brands, and joint venture automobile brands have begun to actively or passively join this price war.

Among domestic independent automobile brands, BYD (002594.SZ) launched the Honor Edition of its popular models Qin PLUS and Destroyer 05 during the 2024 Spring Festival, with prices directly dropping to the 80,000 yuan range, which attracted widespread attention in the market. Subsequently, many domestic automakers quickly followed suit and cut prices, including Changan Automobile (000625.SZ), Wuling Motors (00305.HK), Leapmotor (09863.HK) and many other brands.

At the same time, the price reduction of domestic new energy vehicles is generally large, and some models have even reduced their prices by more than 10%. Among them, the price reduction of Geely Geometry A and other pure electric vehicles is even close to 40%.

Secondly, affected by multiple factors such as market competition, the rise of new energy vehicles and changes in consumer demand, traditional luxury brands will have to maintain their market competitiveness by lowering prices in 2024.

For example, the price of BMW's i3 has dropped sharply, from the original suggested retail price of 353,900 yuan to the bare car price of 189,500 yuan. The price system of BMW's other fuel models is also difficult to maintain stability, such as the BMW 5 Series, 7 Series and other products have fallen below the suggested retail price, with preferential prices starting at 100,000 yuan.

However, even so, BMW's sales in the Chinese market still declined. Data showed that in the first half of this year, BMW's sales in the Chinese market fell 4.2% year-on-year to 375,900 vehicles.

Mercedes-Benz is no exception. The Mercedes-Benz EQS is one of the models with the largest price drop this year, reaching 50%, with a price reduction of more than 660,000 yuan. New energy models such as the Mercedes-Benz EQA and EQB are also following closely, which shows Mercedes-Benz's determination to cut prices in the new energy field.

It can be seen that although the price reduction has improved the cost-effectiveness of traditional luxury brands to a certain extent, due to the complexity of the market environment and the diversity of consumer demand, the price reduction strategy in 2024 has not been able to completely solve the sales difficulties faced by luxury brands.

In addition, many joint venture brands including Volkswagen, Honda, Toyota, and Nissan have also joined the price reduction trend. For example, the limited-time price reduction of the fuel version of the GAC Honda ZR-V has reached about 60,000 yuan, and the starting price is 99,800 yuan.

According to a research report by Minsheng Securities, as of late April, the discount rate for joint venture brands was 18.5%, compared with 8.9% for domestic brands.

In general, the price reduction wave in 2024 will further accelerate the reshuffle process in the automobile market. Automakers that can adapt to market changes will be more likely to stand out in the competition, while those that lack competitiveness may face the risk of being eliminated.

the second part:

Car companies have different attitudes

Regarding the internal competition of car price cuts, the attitudes and opinions of current car companies are also different.

Some car companies have expressed their willingness to respond positively. Zhu Huarong, chairman of Changan Automobile, believes that "involution" is a process in which good money drives out bad money and is a manifestation of the pursuit of excellence. It will push Chinese brands to new heights and maximize user benefits. Wang Chuanfu, chairman of BYD, emphasized that the core of the market economy is competition, and the essence of "involution" is competition, which entrepreneurs should embrace and participate in.

Some automakers are cautious. Li Shufu, chairman of Geely Automobile (00175.HK), believes that "involution" is both a good thing and a bad thing, depending on factors such as the level of marketization and the soundness of the law. Zeng Qinghong, chairman of GAC Group (601238.SH; 02238.HK), believes that continued "involution" is not a long-term solution and suggests studying the policy of "equal rights for oil and electricity" to promote the healthy development of the industry.

Source: Public information, Red Star Capital Bureau

In addition, withdrawing from price wars has become another coping strategy for many automakers.

On July 12, the topic "BMW China will withdraw from the price war" became a hot search on Weibo. BMW China responded that in the second half of the year, BMW will focus on business quality in the domestic market and support dealers to make steady progress. On July 17, according to Cailianshe and other media reports, as BMW took the lead in withdrawing from the price war, Mercedes-Benz and Audi also raised the prices of their models, ending the previous long-term market price war.

In addition, Red Star Capital reported on July 17 that several brands including Volkswagen, Toyota, Honda, Nissan, and Volvo have decided to adjust their terminal policies from July, reduce terminal discounts, or no longer reduce prices further.

the third part:

Car companies' "midterm exam" results are polarized

The price war in the first half of 2024 has come to an end, and the sales performance of various automakers has also been settled. Compared with the lofty statements made at the beginning of the year, the "mid-term exam" results are a mixed bag.

Public data shows that some domestic auto brands have performed well. For example, Changan Automobile and BYD have achieved more than 40% of their annual sales targets in the first half of this year. In addition, in early July this year, Geely Automobile announced that it would increase its original annual sales target by about 5% to 2 million vehicles, and the current completion rate has reached 47.8%.

Some car companies raised their targets, while others chose to lower them.

At the beginning of this year, Li Xiang, CEO of Ideal Auto (02015.HK; LI.US), said that Ideal Auto would challenge the annual delivery target of 800,000 vehicles. However, the annual sales target was subsequently adjusted to 560,000-600,000 vehicles, and then lowered to 480,000 vehicles in June. According to the minimum sales target of 480,000 vehicles, Ideal's sales completion rate in the first half of the year was 39.4%.

In contrast, as one of the three giants of new car-making forces, Xpeng Motors (09868.HK; XPEV.US) lagged behind in sales in the first half of this year. Based on the annual sales target of 280,000 vehicles, Xpeng Motors achieved only 18.6% of its target in the first half of the year.

Source: Public information, Red Star Capital Bureau

Judging from the half-year sales data of automakers, most automakers have only achieved about 30% of their annual sales targets. 2024 is already halfway through, and in order to achieve their targets in the second half of the year, whether automakers will continue to cut prices to stimulate consumption, and whether the involution of automakers will intensify, is still worth paying attention to.

fourth part:

Profitability of some automakers faces challenges

After the end of the internal competition in the first half of the year, some car companies also announced their performance forecasts for the first half of 2024.

As of July 17, Great Wall Motor (601633.SH), Changan Automobile, SERES (601127.SH), JAC Motors, BAIC BluePark (600733.SH), Zotye Auto (000980.SZ), and Haima Automobile (000572.SZ) released their performance forecasts for the first half of 2024.

Among them, Great Wall Motor's performance was relatively outstanding. According to the company's announcement, the net profit attributable to the parent company's owners in the first half of 2024 is expected to be 6.5 billion yuan to 7.3 billion yuan, a year-on-year increase of 377.49% to 436.26%.

In contrast, Changan Automobile's performance in the first half of this year was under some pressure. According to the company's announcement, Changan Automobile's net profit in the first half of 2024 is expected to be between 2.5 billion yuan and 3.2 billion yuan, a year-on-year decline of 58% to 67%.

In addition, Zotye Auto and Haima Auto are still in the quagmire of losses. According to corporate announcements, in the first half of 2024, Zotye Auto expects a net loss of 290 million to 390 million yuan attributable to shareholders of the listed company; Haima Auto expects a net loss of 140 million to 180 million yuan attributable to shareholders of the listed company.

Compared with the more complete financial reports of automobile companies in the first quarter of this year, according to incomplete statistics, in the first quarter of 2024, the revenue and net profit of SAIC, BAIC, GAC and other automobile companies declined year-on-year; in addition, Changan Automobile, Ideal Auto and JAC Motors saw revenue growth while their net profit declined year-on-year.

It is worth mentioning that the price war among car companies affects far more than just the car companies themselves, but the entire upstream and downstream industrial chains of the automotive industry.

For example, Huayu Automotive (600741.SH), one of the largest auto parts companies in China, reported a slight year-on-year increase of 0.56% in revenue and a year-on-year decrease of 18.19% in operating profit in its first quarter of 2024. Huayu Automotive mentioned in its financial report that the cost and resilience of the parts supply chain are facing greater challenges.

summary:

In general, price wars are a double-edged sword for automakers. On the one hand, it stimulates consumption, maintains sales, and promotes industry reshuffles and technological innovation; on the other hand, it also leads to problems such as shrinking industry profits and transmitting pressure from upstream to downstream.

Who will have the last laugh? This will test the brand strength, R&D capabilities, marketing strategies, cost control, etc. of the car companies. Obviously, this battle is destined to be difficult for most car companies.

Red Star News reporter Liu Mi

Editor: Deng Lingyao