Chinese premium electric-vehicle makers can expect a better outlook in 2024 as consumer demand and product margins improve and assemblers get a breather from the cutthroat price wars that have already wiped out several rivals.
Major players Nio, Xpeng and Li Auto are all feeling the effects of a three-month price war that has seen prices of 50 models across various brands fall by an average of 10%.The companies are predicting a surge in sales in the three months to June as government subsidies take effect and consumers return to the world’s largest EV market, which accounts for around 60% of global sales.
“Subsidies for electric vehicle (EV) purchases have provided a big boost to major players,” said Fateh Zhang, founder of Shanghai-based electric vehicle data provider CnEVPost. “There is also a growing belief that the fierce price war will soon end, leading to higher profit margins for cars.”
Beijing announced in late April that it would offer subsidies of 10,000 yuan (US$1,380) to anyone who trades in a gasoline-powered car for an electric one, with the incentives available until the end of the year.
Subsidies could boost EV sales by as much as 2 million units in 2024 as the pace of electrification in China’s auto industry picks up, Everbright Securities said in a research note in May.
Subsidies for EV buyers were first introduced in China in 2009 and peaked at 100,000 yuan in 2014, with sales increasing fourfold.
Deutsche Bank said NIO and Xpeng’s profit margins will improve this year due to higher sales volumes, a better product mix and potentially fewer promotional activities.
All three automakers build battery-powered vehicles with intelligent features such as self-driving technology and voice-activated control systems.
Last month, NIO launched a mass-market brand called Ombo in an effort to broaden its customer base. Ombo’s first model, the L60 sports utility vehicle, is priced at 219,900 yuan, 30,000 yuan, or 12%, cheaper than the base version of Tesla’s Model Y, which is made in Shanghai.
The new brand’s monthly shipments exceeding 20,000 units will have a positive impact on the company’s profitability, NIO CEO William Li said at a press conference last month. The company plans to begin mass production of the L60 in September and start shipping it to customers in mainland China.
JPMorgan analyst Nick Lai said the fierce competition would force some underperforming mainland Chinese electric-vehicle makers out of business.
“I think everyone would agree that the Chinese auto market doesn’t need 100 brands,” he said. “Some brands will be forced to exit, some will remain. It’s fair to say there will be a lot of consolidation.”
China’s electric vehicle sector, one of the main drivers of the economy, is expected to grow 37% in 2023 but only 20% this year, according to a forecast released in November by Fitch Ratings.
Since then, prices of 50 models across a range of brands have fallen an average of 10% in value, Goldman Sachs said in a report last month.
The U.S. bank added that China’s EV industry could suffer losses if BYD cuts prices a further 10,300 yuan per vehicle, or 7% of its average selling price.
