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Zhitong Finance APP learned that Cui Dongshu, secretary general of the China Passenger Car Association, said in a statement that the price war in the second half of the year may slow down. After the fierce competition in the first half of the year, the market may gradually form a new price balance point. The intensification of the price war in the auto market in the past two years has strong causes on both the supply side and the demand side. The expansion of the subsidy for scrapping and updating cars and the doubling of subsidies are major benefits to the auto market, and the subsidies for passenger cars have doubled. As a long-term measure, it is recommended to adjust the current scope of personal income tax deductions, increase tax-free deductions for car purchases, and include family vehicle purchases in the scope of tax deductions.

1. Supply-side incentives for price wars

A. The sluggish PPI brings

In June 2024, the national industrial producer prices fell by 0.8% year-on-year, 0.6 percentage points narrower than the previous month, and fell by 0.2% month-on-month from a 0.2% increase in the previous month; the purchase prices of industrial producers fell by 0.5% year-on-year and rose by 0.1% month-on-month. In the first half of the year, the ex-factory prices of industrial producers fell by 2.1% year-on-year, and the purchase prices of industrial producers fell by 2.6%.

B. Huge reduction in battery costs

C. Increase in production and sales volume

Among the passenger car wholesale sales exceeding 20,000 units in June, new energy vehicles ranked in the top 5 in overall passenger car sales. New energy vehicles have a high market recognition, while the main fuel vehicle models did not perform well in China.

2. Consumer incentives for price wars

The main cause of the price war on the consumer side is the lack of consumer confidence, low expectations, and the downward shift of the demand curve caused by the decline in purchasing power. New cars can only be launched at a low price to meet market sales expectations;

The income perception index in the first quarter of 2024 was 48.0%, up 0.8 percentage points from the previous quarter. Among them, 13.2% of residents believed that their income "increased", 69.6% of residents believed that their income "remained basically unchanged", and 17.3% of residents believed that their income "decreased". The income confidence index was 47.0%, basically the same as the previous quarter.

3. Price war impacts automobile circulation ecology

The Chinese auto industry is experiencing a world of ice and fire. On the one hand, the annual production and sales volume have exceeded 30 million vehicles, setting a record high, while on the other hand, 4S stores are withdrawing from the network on a large scale, with an average of 2,000 stores closing down every year. This is also the pain of price wars and industrial transformation, but the speed is so fast that many investors cannot accept it. The current circulation car companies are in deep crisis. The recent delisting of Guanghui Auto also deeply reflects the changes in the market structure. At its peak, the total market value of Guanghui Auto once exceeded 130 billion yuan, but now the market value is less than 6.5 billion yuan, shrinking by more than 95%. It is worth mentioning that in order to avoid "delisting at par value", Guanghui Auto has actively saved itself and even gave up the company's control.

However, with the impact of new energy on traditional vehicles, especially the impact on the competitiveness of traditional car companies, huge promotions have deviated from the normal trend. Manufacturers are vigorously pursuing task indicators such as gross domestic product and tax contribution against the background of declining product strength. The vicious sales price war has brought deep pressure on the circulation system, and some price competition has seriously deviated from the normal market behavior of price promotion.

4. Not all consumers are price sensitive

The current automobile market is undergoing drastic technological changes, and consumers are focusing on differentiated features in the products they choose. The product power and new charm indicators brought by new energy vehicles are impossible to achieve with traditional vehicles.

Some car companies use price wars to solve the impact of changes in product demand, which results in huge losses and poor results. Car companies respond to the price of their main products based on their own conditions, resulting in a price war.

From the United StatesTeslaFSD lacks users to pay for it, and in the predicament of intelligence being well received but not popular, it is fundamental for everyone to do a good job in electrification. And the competition between fuel vehicles and new energy vehicles will take a long time.

It is extremely difficult for traditional car companies to achieve a sales recovery through strong price promotions. It is better for them to maintain a stable mentality and achieve reasonable production and sales targets so that they can make smooth adjustments.

5. The significance of passenger car scrapping and renewal is great

Several measures on strengthening support for large-scale equipment renewal and replacement of old consumer goods with new ones were released on the 25th. The document proposes to coordinate the allocation of about 300 billion yuan of ultra-long-term special treasury bonds to strengthen support for large-scale equipment renewal and replacement of old consumer goods with new ones.

The policy clarifies: (VIII) Raising the subsidy standard for scrapping and updating cars. Based on the Implementation Rules for Subsidies for Old-for-New Cars (Shang Xiaofei Letter [2024] No. 75), individual consumers who scrap fuel passenger cars with National III emission standards or below or new energy passenger cars registered before April 30, 2018 (inclusive), and purchase new energy passenger cars included in the "Catalogue of New Energy Vehicle Models for Vehicle Purchase Tax Reduction and Exemption" or fuel passenger cars with a displacement of 2.0 liters or less, will receive a subsidy of RMB 20,000 for new energy passenger cars and RMB 15,000 for fuel passenger cars with a displacement of 2.0 liters or less.

6. The easing of price wars is conducive to the smooth transformation of the industry

Some manufacturers realize that the price war is unsustainable, but no one will take the initiative to withdraw because there is no system to control the policy steps of each company, so the price war will continue in the early stage. The price war may slow down in the second half of the year. After the fierce competition in the first half of the year, the market may gradually form a new price balance point.

The continued loss of each vehicle by automakers is not a long-term solution. After a round of price wars, automakers may re-evaluate their pricing strategies and seek a more stable profit model. Currently, the quickest way to reduce inventory is to reduce production and stabilize the system.

The country's promotional policy of replacing old cars with new ones has a good effect on the auto market. If the policy of deducting personal income tax from car purchases is implemented in the future, it should have a better effect.