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The price war that has continued since last year still has no end in sight. After most brands chose to lower their prices, the price war seems to have turned into an endless internal conflict.

Recently, BMW, Mercedes-Benz, and Audi have all reduced their terminal discounts to varying degrees, announcing in different forms that they would stop "reducing prices to maintain volume" and instead "reducing volume to maintain prices." Subsequently, many brands including Volkswagen, Toyota, Honda, Volvo, and Cadillac also adjusted their terminal policies and reduced their discounts.

"The current price competition is mainly aimed at directly breaking through the lower limit of the original price, rather than increasing configuration without lowering prices." Cui Dongshu, secretary-general of the China Passenger Car Association, said that the price war does not actually have a significant effect on promoting sales in the short term, especially when prices are unstable, and consumers are particularly wait-and-see.

Recently, mainstream joint venture brands have taken different actions to adjust terminal prices, which is seen by the industry as a signal that they will collectively withdraw from the price war. After all, after more than a year of price war, most brands have not achieved the expectation of "trading price for volume", but instead "lost both volume and price", which has also led to a poor living environment for dealers and constant conflicts with manufacturers.

"Price wars are unsustainable, and companies still need to build a good brand. What we need to think about is how to deliver on our promises to users." Yu Jingmin, executive vice president of sales and marketing at SAIC Volkswagen, said in a recent interview that it is irresponsible to users to increase prices for the sake of market competition. In the era of internal competition, the most important thing is to build a brand moat, form brand awareness and customer base, and continue to deliver brand services to users.

In fact, since June, senior executives of many automakers have publicly expressed their opposition to price wars without limits. Now that joint venture brands have withdrawn from price wars one after another, is it a timely way to stop losses, or is it a way to survive with "losing both volume and price"?

Price increase

"I bought a BMW 3 Series in June, and the price increased by 30,000 yuan at the end of July." The car owner Xiao Wang said that he was glad that he did not procrastinate, as it was said that the price had increased again recently.

Many netizens have reported that the prices of many BMW models have increased to varying degrees. For example, the X3 Premium Edition, which was priced at 330,000 yuan last month, has risen to 377,000 yuan this month. The i3, which was once "50% off", has now increased its landing price by 20,000 to 30,000 yuan after adding financial policy benefits. According to the salesperson, the i3 inventory in the store has basically been consumed. In the next two months or so, the price may increase by another 30,000 to 40,000 yuan. ‍‍‍‍‍‍‍‍‍‍‍‍‍‍‍‍‍‍‍‍‍‍‍‍

The price increase of Mercedes-Benz is also not small. According to netizens, the discount of Mercedes-Benz E300 luxury version was about 30,000 yuan in early July, but now it has narrowed to 20,000 yuan, and it depends on the actual inventory and sales of each store. Some netizens even said that after viewing the car, they wanted to wait and see, but they did not expect that the salesperson notified them that the price had increased by 5,000 yuan that night, and then even changed the price every day. Now they don’t know whether they should regret not making a prompt decision or continue to wait and see. Another netizen shared that the total mortgage price of the Mercedes-Benz CLE 260 that was previously optimistic about was 420,000 yuan, but now it has been raised to 460,000 yuan, while the minimum mortgage price of the CLE 300 with a higher configuration a few months ago was only 440,000 yuan. ‍‍‍‍‍‍‍

The same is true for Audi. One netizen posted a photo of an Audi Q3 that he negotiated for 217,000 yuan in early July. When he picked up the car in late July, he found that the price had risen to 227,000 yuan. He couldn't help but feel lucky that he saved 10,000 yuan by making the move half a month earlier. There are many car owners with similar experiences: the Audi A4L, which could be purchased for 195,000 yuan in June, now has a terminal price of around 210,000 yuan. The prices of Q5L and A6L have also increased by 10,000 to 20,000 yuan compared to June. ‍‍‍‍‍‍‍‍‍‍‍‍

Image credit: Audi

"Prices will continue to rise." Sales staff of many brands have told customers this recently. Many prospective car owners thought it was just a sales tactic, but from the current situation, joint venture brands have indeed narrowed their terminal discounts to varying degrees.

In the view of industry insiders, in addition to strategic adjustments to exit the price war, seasonal factors and inventory management are also important factors affecting the price trend of joint venture cars. July and August are usually the off-season for car sales, and after the surge in June, inventory is also at a low level, so joint venture car companies may take the opportunity to adjust prices to cope with market changes.

Although Toyota, Honda, Volvo, Cadillac and others have announced price increases, the overall prices are lower than those of luxury cars, so the terminal price changes are not obvious at present.

Forced stop loss

Judging from the current situation, the withdrawal of many joint venture brands from the price war seems more like a helpless move to stop losses.

Data shows that in the first half of this year, BMW (including MINI) sold 375,900 vehicles in China, down 4.2% year-on-year; Mercedes-Benz sold 352,600 vehicles in China, down 5.8% year-on-year. Audi sold 320,400 vehicles in China, down 1.9% year-on-year.

Audi mentioned that it is facing challenges of intensified competition and shrinking high-end car market in China.

The facts are indeed not optimistic. According to the China Passenger Car Association, in June, the retail share of German brands was 18.6%, a year-on-year decrease of 2.6 percentage points; the retail share of Japanese brands was 14.3%, a year-on-year decrease of 3.5 percentage points; and the retail share of American brands was 6.3%, a year-on-year decrease of 2.9 percentage points.

In recent years, the market share of Chinese brands in passenger cars has continued to increase, and as one grows, the other shrinks, while joint venture brands are losing ground. In June, compared with Chinese brands, whose sales increased by 10% year-on-year, the retail sales of mainstream joint venture brands fell to 480,000 vehicles, a year-on-year decrease of 27%. In 2020, joint venture brands accounted for 60% of the passenger car market. In the first half of this year, the roles were reversed, and Chinese brands took nearly 60% of the retail market.

The escalating price war has added fuel to the market share competition. From the development trend, there is no sign of stopping the decline in sales and market share of joint venture brands. Under the fission of the automobile market, the survival space of joint venture brands is still being compressed.

On July 25, Honda Motor announced that it would close a Guangqi Honda plant in China and suspend vehicle production at a Dongfeng Honda plant in the face of fierce competition in the Chinese electric vehicle market. The annual production capacity of fuel vehicles in China will be reduced from 1.49 million to 1 million. It is understood that this is Honda's first production cut in China and the largest production cut by a Japanese automaker in China.

With multiple chain reactions such as declining sales, lost market share, and reduced production at factories, the operating conditions of first-line dealers are frequently in danger. Under the catalysis of price wars, the contradictory business model of "losing money on every car sold" and "losing more money if not selling" is almost overwhelming dealers. Shen Jinjun, president of the China Automobile Dealers Association, said that luxury brand dealers are beginning to suffer large-scale losses.

Therefore, after the substantial price cuts and inventory clearance in June, it is reasonable for more and more joint venture brands to choose to withdraw from the price war, stop losses in time, and restore blood for the brand.

In an interview with the media, BMW Brilliance CEO Dai Hexuan said that BMW will discuss sustainable business models with upstream and downstream partners to ensure that all partners can survive into the future.

The situation is grim‍‍‍

Although joint venture brands have been pushed to the 40% market share red line, this is not the worst situation. BYD Chairman Wang Chuanfu said at an event in August last year that by 2025, the market share of Chinese independent brands is expected to increase to 70%.

As the barriers to smart and electrified vehicles built by Chinese brands are getting higher and higher, joint venture brands that still focus on fuel vehicles are particularly slow to transform. The idea that fuel and electric vehicles are the same price, the big difference in smart configurations, and the change in brand value perception are causing more and more consumers to re-examine joint venture brands.

A research report from CITIC Securities pointed out that due to slow response to changes in market demand and backward strategic decision-making, joint venture brands generally missed the bonus period of rapid increase in new energy penetration in China from 2020 to 2022. In the long run, we believe that the clearance trend of joint venture automakers will be difficult to reverse. The reason is that when the model cycle weakens temporarily and it is difficult to quickly iterate the model matrix to reverse the downward trend, the OEMs can easily enter a "death spiral" of falling volume and price. In addition, domestic new energy companies are in a reshuffle period, and joint venture automakers with relatively slow market decision-making will find it even more difficult to break through. ‍‍‍‍‍

Despite this, joint venture car companies are still making every effort to seek breakthroughs, which has also spawned new technical cooperation relationships. In 2023, the in-depth cooperation between Xiaopeng and Volkswagen, Leapmotor and Stellantis, Volkswagen and JAC, Great Wall and BMW, etc. are all regarded as typical cases of Chinese car companies exporting advanced technologies.

On July 6, the three-door model of the fifth-generation MINI product jointly developed by Great Wall Motors and BMW, the all-new electric MINI Cooper, was officially launched. This model is also the first model of the joint venture between Great Wall Motors and BMW. According to the plan, Lightbeam Automotive will be responsible for the production of MINI pure electric models and sell them worldwide.

Image source: BMW

On July 11, the first smart electric coupe SUV jointly developed by Volkswagen and JAC, ID. Yuzhong, was officially launched. In the view of Meng Xia, CEO of Volkswagen Passenger Car Brand China, this smart connected car that keeps pace with the times will attract more young users who pursue a new lifestyle. ID. Yuzhong also comes from Volkswagen and JAC's new joint venture, Volkswagen (Anhui) Digital Sales Service Co., Ltd. (referred to as "Volkswagen Anhui"), which is also Volkswagen's third joint venture in China after SAIC Volkswagen and FAW-Volkswagen.

Among Japanese automakers, Toyota has also chosen to cooperate with Chinese automakers in technology. The second model of the Toyota bZ series, the bZ3, released last year, was jointly developed by Toyota, BYD and FAW Toyota.

Joint venture automakers have launched new energy vehicle brands to cater to Chinese consumers' demand for electrification and smart technology, but this path may not be enough to add value to the new energy transformation of existing joint venture brands.

The main difficulties faced by most joint venture brands at present are that fuel vehicle products are updated relatively slowly, the product intelligence level is not high, and new energy products are scarce and intelligent technology is not prominent. But at the same time, Chinese auto brands are still facing the dilemma of increasing new energy products but not increasing revenue, and the internal friction caused by price wars should not be underestimated. In the tide of electrification and intelligence, where will this battle go? ‍

‍Author: Zheng Yu