2023 auto price war: extremely cruel, involving everyone upstream and downstream, and there is no end in sight

Original link: https://www.latepost.com/news/dj_detail?id=1575

The price was reduced by 20,000 yuan, 48,000 yuan, 90,000 yuan, and 160,000 yuan. Automakers tried to stimulate people’s desire to spend money with larger numbers. The spring of 2023 is the beginning of the auto industry getting out of the epidemic, but the recovery of consumption will not be so fast. The car price war began immediately.

In January of this year, Tesla dropped its first bomb, and its Model 3 and Model Y announced a drop of 20,000-48,000 yuan. After the fuse was ignited, the industrial link exploded. In February, the entry-level version of BYD Qin PLUS was lowered to less than 100,000 yuan, realizing the “same price of gasoline and electricity”, and more than 10 new energy vehicle companies followed suit. Entering March, Dongfeng Motor Group’s 7 auto brands including Dongfeng Nissan, Lantu, Dongfeng Peugeot, Dongfeng Citroen, and 56 models have “limited-time promotions”, with a maximum reduction of 90,000 yuan, which has become a symbol of joint venture fuel vehicle price reduction. Nearly 40 car companies followed up one after another, and the price war detonated in the fuel car camp.

A Dongfeng employee who joined in 2017 experienced the first price war in his career. He felt that “this is not a bad thing” and “the threshold for users to buy a car has been lowered.” A Dongfeng Citroen salesman is not used to the current situation. Busy, all the existing cars in their store have been booked out. He took over the job of “purchasing on behalf of other places” before, and now he needs to be persuaded to quit one by one.

A person in charge of marketing at a car company who has been in the industry for 13 years said with emotion, “Every price war is a process of elimination.” No car company has been eliminated yet, which means that the fight will continue. He estimated that “this price war will take another two to three rounds.”


Tesla ignites “price cut lead”

“Will Tesla still maintain a 50% growth rate in the next few years?” On December 22 last year, Musk was asked this question at the Twitter Space Voice Conference, and he gave a pessimistic answer and coping method. He sees a severe recession in 2023 with lower consumer demand. The approach he gave was, “First, increase sales and lower prices; second, grow at a lower rate and maintain stability.”

Musk has said publicly at least four times in the last year that a global recession is imminent, calling on the Federal Reserve to cut interest rates to stimulate the economy. On the 15th day after expressing the above point of view, employees of Tesla China received an email from the US headquarters, requesting that the price on the official website be changed on the same day. The entry-level guidance prices of Tesla’s two domestic models Model 3 and Model Y have been lowered to the lowest prices in history, which are 230,000 yuan and 260,000 yuan, respectively. Within seven days, Tesla announced price cuts in ten countries, with an average drop of more than 10%.

The news of Tesla’s price cuts was thrown into the auto market like a bomb, and old car owners who defended their rights and new car owners rushed into Tesla stores together. Musk announced that in January of this year, Tesla received “orders for two months of production capacity.” Before that, Tesla’s production capacity and orders were not coordinated. In December 2022, the orders in Tesla’s hands decreased, and Tesla’s Shanghai factory was temporarily shut down for maintenance. According to data from the Passenger Federation, Tesla China’s sales at that time fell by 44% month-on-month, but the Shanghai factory’s production capacity reached 1.1 million vehicles per year.

In the same price range, no one can survive alone, and the brutal and bloody price war is a contest of life and death.

In the 100,000-class market and the 200,000-class market, BYD has made two-handed price cuts. In the 100,000-level market, in February this year, the 2023 Qin PLUS was launched with a starting price of 99,800 yuan, a disguised price reduction of 14,000 yuan.

The Qin family is BYD’s “main sales force”. In 2022, it sold 310,000 vehicles, which is twice the sales volume of Nezha cars with similar prices. After the price cut, Qin PLUS has to shoulder the heavy responsibility of sales. This has also eroded the share of weak electric vehicles and fuel vehicles at the same price.

The 200,000-level market is where Tesla and BYD face each other. In March this year, BYD Seal officially announced a discount of several thousand yuan. Therefore, the starting price of Seal is 20,000 yuan lower than that of Tesla Model 3 and Y.

“The most stressful point in this industry is that the top two companies can fight price wars. This is simply not seen in mobile phones and other industries.” Ideal CEO Li Xiang commented at the spring media communication meeting.

In the mobile phone market, Apple has firmly grasped high-end users. When the sales of the entire market stopped growing, Apple kept the company’s profit growth through price increases, and its market value once exceeded US$3 trillion. But Musk has no obsession with brand premiums and total profits. His idol is Henry Ford, who invented the modern industrial assembly line and used the low-cost Model T to grab the market.

Tesla also has plenty of room to cut prices. In 2022, Tesla’s gross profit margin will reach 26%, surpassing Volkswagen (18.5%), Ford (15%), and domestic new forces Weilai (10.4%), Xiaopeng (11.5%), and Ideal (19.4%). Behind this, Tesla is good at squeezing costs in every link, and using innovative technologies such as integrated die-casting to improve efficiency.

A person close to Tesla told “Later Auto” that in order to reduce costs, Tesla will flexibly adjust the subtle configuration of the model, “the Model 3 produced this month may be different from last month.” An example is that the Shanghai factory removed a plastic cover from the Model 3 armrest. For this reason, many Tesla owners have to buy a similar cover from Taobao, which sells for 18 yuan.

At this year’s Investor Day event, Tesla announced that the cost of the next-generation model platform will be reduced by 50%, which also means that the price of Tesla’s new car is expected to drop below $18,000 (about 120,000 yuan). At the event, Zhu Xiaotong, Tesla’s global vice president who just took office, said, “As Musk said, as long as the price is good, you don’t have to worry about anything else, so everything is about reducing costs.”

After Tesla’s price cut, Wenjie and Xiaopeng Motors, which were losing money, followed suit. On January 13, the prices of Wenjie M5 and M7 were reduced by 28,800 to 30,000 yuan. On January 17, the prices of three models of Xiaopeng Motors (G3, P5, P7) were reduced by RMB 20,000 to RMB 36,000.

On February 1, Aian announced a limited-time price reduction. Users who deliver vehicles between February 1 and February 28 can enjoy a delivery subsidy of 5,000 yuan. On March 7, the AION Y Younger model was officially launched, with an official price of 119,800 yuan, which is 20,000 yuan cheaper than the original entry-level 70 Lexiang version.

Xiao Yong, deputy general manager of GAC Aian, once introduced the logic of price cuts in a group interview with the media. After intense internal discussions, Aian finally decided to “throw away any luck and illusions and prepare for a tough battle.” He bluntly said that not surrendering at this moment is tantamount to waiting for death. “When you say you’ll never do anything, you’re actually scared.”

In 2022, with a report card of 271,000 units, a year-on-year increase of 126%, Aion will rank fifth in the sales list of domestic new energy manufacturers, ranking behind BYD, Wuling, Tesla and Geely. In Xiao Yong’s eyes, only by entering the top three in the industry can he really have the right to speak. Therefore, he has also repeatedly emphasized within the company that there is no retreat for Aian in 2023, and he must fight with his back.

In the earnings conference call in mid-March, one of the most frequently mentioned key words by Xpeng Motors CEO He Xiaopeng was “cost reduction”, “in the face of fierce industry competition and involution, it is very important to have super cost control This will also be the core competency for Xiaopeng Motors to win the competition.” He Xiaopeng said that by next year, Xiaopeng will reduce the hardware cost of self-driving by more than 50%, and the power and hardware system costs of the vehicle will drop by 25%.

After Tesla’s price cut, more than 10 new energy car companies followed suit, and a wave of new energy price cuts followed. But at this stage, the price adjustment of new energy brands still belongs to the normal category of self-adjustment in response to competition. When fuel car companies enter the market to disrupt the situation, the situation becomes more complicated.


The “big explosion” of joint venture fuel vehicles, but the effect of price reduction is getting worse

When the car market changes from an incremental market to a stock market, the growth of new energy vehicles is robbing the living space of fuel vehicles. From 2017 to 2022, China’s fuel passenger vehicle sales will decrease by about 7 million units, and new energy vehicles will increase by 4.472 million units. Especially in January this year, fuel vehicles fell 44.8% year-on-year.

In the fuel vehicle camp, joint venture car companies are the most anxious. “Domestic cars are more cost-effective, and young people don’t care about brands anymore,” said an employee of a Korean car company. Tesla and BYD fought, and joint venture fuel vehicles suffered. After the price reduction, the prices of Tesla Model 3, Model Y and BYD Seal came to 150,000-350,000 yuan. This is the mainstream price range of B-class joint venture cars. Dongfeng Citroen C6, Dongfeng Peugeot 508L, Volkswagen Magotan and other models are all priced here.

B-class gasoline vehicles were originally a market segment for traditional joint venture brands to settle down and establish their image. According to data from the Passenger Federation, in March 2022, joint venture car companies accounted for more than 60% of the B-class car market. In the same year, 549,000 B-class gasoline vehicles were sold—only a quarter of 2015.

Dongfeng Group owns seven joint venture brands including Dongfeng Citroen, Dongfeng Peugeot, and Dongfeng Honda. It is known as the largest joint venture car company in China. It has a strong sense of the market, and its weaker brands are also the first to feel the chill.

DPCA is a joint venture between Dongfeng and Peugeot Citroen. It peaked in 2015, selling 700,000 vehicles, and has since declined to only 120,000 in 2022. In February this year, the sales volume of Shenlong Automobile was 5,425 units, less than 1/8 of that of 8 years ago.

The products are unsalable, and all aspects of Shenlong Company are affected. A person from the Shenlong factory told “Later Auto”, “The production capacity of the Shenlong Wuhan factory is more than 10,000 vehicles a month.” One month’s sales, the factory finished production in half a month. Due to the imbalance of orders and production capacity, “after the epidemic, the Shenlong factory had holidays every three to five days, and only worked more than 10 days in February.” A person from Shenlong recalled the scene at that time. If the local government does not intervene, the respite will turn into the suspension of production of the main engine factory, and the suspension of the first, second, third and fourth-tier suppliers below, “it will enter a vicious circle.”

Shenlong still has a large number of vehicles in stock. In 2019, Dongfeng Peugeot ranked first in the China Automobile Dealers Association with an inventory of up to 3.8 months, and there is a lot of pressure to return funds. In an interview with Caixin, a person with shares of Dongfeng Group said that their dealer’s inventory surged and they refused to continue to pick up the car, and the interests of the two sides collided.

Dongfeng Honda and Nissan are not optimistic either. In 2022, their sales will fall by 17.8% and 22.7% respectively, and the sales of Dongfeng Motor Group as a whole will fall by 42.46% compared to the peak. The ability to earn money has declined, and the year-end bonus of the Dongfeng Department has also been affected. A Dongfeng Commercial Vehicle employee said, “At the beginning of 2023, the year-end bonus for most of them is one month’s salary, and at the beginning of 2021, it will be paid for four months.” In February 2023, Dongfeng Motor Group wrote in a document issued to all employees that it is necessary to maintain “strategic sobriety” at all times and never allow the company to have “disruptive risks.”

Dongfeng is the automobile business card of Wuhan. The director of Dongfeng Motor Group Co., Ltd. mentioned in a speech in October last year that Dongfeng has invested more than 50 billion yuan in fixed investment in Wuhan in the past 10 years, and one out of every four car buyers in Wuhan chooses Dongfeng Motor. Consumption in the auto market is sluggish, and Wuhan is unwilling to sit still. At a symposium in early March, the Wuhan Economic and Technological Development Zone stated that “relevant departments and car companies must put pressure on themselves, insist on annual goals and tasks, pay close attention to the scheduling of car production and sales, and heat up the car consumer market.” Entering March, Hubei Province and a number of car companies launched a one-month government-enterprise car purchase subsidy measure, with a maximum reduction of 90,000.

“2023 is the first year of recovery after the epidemic. Against the background of the real estate downturn, we believe that local governments have the motivation to drive overall economic growth through automobiles.” Cinda Securities wrote in the report.

The effect of Dongfeng’s price reduction is immediate in the short term. The above-mentioned factory personnel said that they have received orders for 10,000 vehicles in the past few days, and one car was taken away after one car was produced. In the past, they always took vacations, and sometimes they worked less than five days a week. “Now they are working in two shifts.” “.

After Dongfeng launched the first price cut for joint venture car companies, nearly 40 car companies including SAIC Volkswagen, FAW Toyota, and Beijing Hyundai followed suit. Participating car companies also shifted from joint venture car companies to independent cars. The price war intensified and completely dispersed.

“Korean cars are very difficult in China, and many consumers are waiting for you to lower the price.” An employee of a Korean car company said. There are not a few car companies who have such an idea. An employee of a joint venture car company told “Later Auto” that they also want to “promote sales” and withdraw funds. If they do not drop, they may end up with “neither sales nor profits.”

After one price cut after another, people in the industry tried to find some reasons for this unprecedented wave of car price cuts in China. Cui Dongshu, secretary-general of the Passenger Federation, said, “This round of promotions is also for companies to clear inventory for the replacement of National VI emission standards.” The shift in policy has intensified the idea of ​​car companies to cut prices. Started. This standard is more stringent than the National VIA standard on the emission of particulate matter, nitrogen oxides and other pollutants in vehicle exhaust. But there are also people who hold the opposite view. “In fact, most car companies have already made technical preparations when they switched from China V to China VI,” said Chen Shihua, deputy secretary-general of the China Association of Automobile Manufacturers. This round of Dongfeng Citroen, which leads the price reduction of fuel vehicles, all meet the National VI B standard.

The regional director of an independent car company attributed the price reduction to “this is a marketing conference” and “the market is off-season, and everyone hopes to boost sales together.”

“The sharp price cuts or gimmick packaging promotions of some car companies will only exacerbate the confusion in the price system,” the person in charge of marketing policy planning at GAC Toyota expressed emotion to “Later Auto”. Their current strategy is to package the current discounts in real ways, without making false claims, and without superimposing discounts with high thresholds. “The purpose is to maintain price stability and facilitate brand communication.” A Volkswagen practitioner also questioned, “Many B-class cars are sold in the price range of A-class cars, how can A-class cars be sold?”

After the big price cut, the “order carnival” did not come, and the price war made people who were considering buying a car even more eager to wait and see.

A number of car companies told “Later Auto”, “At present, all brands are the same, and the order effect is average.” A salesperson of a luxury car company said that the increase in the number of customers entering the store was mainly due to the fact that they came to the store to ask if there was a greater discount, but the willingness of the people who came to place an order was extremely low, and the previous order users were also unwilling to pick up the car, which affected Not to mention gross profit.

Lin Jie, senior vice president of Geely Automobile Group, told “Later Auto”, “Price wars are not a long-term solution for car companies, but instead cause current consumers to hold money to buy.”

According to data from the Passenger Federation, in the first three weeks of March, the passenger car market retailed 700,000 units, a year-on-year decrease of 8% and a decrease of 4% from the same period last month. Even leading car companies are suffering. Sun Shaojun, a person in the auto industry who has been tracking sales data for a long time, predicts that in the first three weeks of March, BYD is expected to decline by 5%-10% month-on-month, and Tesla is expected to decline by 20%-25% month-on-month.

Flames quickly spread to car dealerships

In the era of fuel vehicles, dealers are a vital link in the entire automotive industry chain. Song Hang, an employee who has worked in a dealer group in Guangzhou for more than 7 years, felt “very confused” when he heard that Dongfeng had cut prices. Their company has more than 50 brands and more than 100 stores. This price war made him feel “uncontrollable”.

During the price war during the period of China V to China VI, his company would promote sales in advance and control inventory, but this price war was suddenly set off by some manufacturers and some cities, forming a “price depression” in the auto market. These products have changed the country. Consumers’ price expectations and car buying wait-and-see sentiment are even more serious. The inventory factor of his company is “soaring year-on-year and month-on-month.”

“A car costs hundreds of thousands of yuan, and the general inventory is more than a hundred cars. If you put it in the warehouse, you will pay the bank an extra day of interest.” Song Hang said. Dealers usually get loans from banks and then go to the depot to pick up the car in full. They hope that the inventory turnover will be as fast as possible.

The biggest loss for dealers at present is new car sales. Manufacturers issue car pick-up tasks to corresponding dealers in various regions and communities—dealers pick up cars at almost the guide price—sell them to consumers at a discount—rely on derivative services and manufacturer rebates to make up for losses. The assessment of rebates includes the total number of cars picked up, specific models, installment car loans, etc.

Under the price war, the inventory pressure of dealers has increased, and some brand stores under Song Hang’s company are even more afraid to buy from car companies. This is a vicious circle. If the dealer’s purchase volume is lower than the target set by the car factory, the rebate will be discounted or even not at all.

“Some large dealers simply don’t buy cars and don’t want rebates, but they lose less.” Song Hang’s company has 40 stores that have suffered losses for three consecutive years.

He has witnessed the transformation of the dealer model from prosperity to decline. From 2012 to 2016, the annual salary of the person in charge of an ordinary 4S store can reach 800,000 to 900,000 yuan, but now the annual salary of the person in charge of a loss-making store is only more than 100,000 yuan. Front-line personnel leave frequently, “some stores and workshops don’t have masters to repair cars.”

The idea of ​​some dealers is to switch to second-hand car dealers and get goods from other dealers. There is no inventory pressure and less loss. But the life of second-hand car dealers is getting more and more difficult. Liu Cheng, a second-hand car dealer in Qingdao, told “Later Auto” that after the adjustment of the epidemic policy, travel demand surged, and second-hand cars also ushered in a wave of peak transactions. The market in January and February was “rarely good”, and almost all the dozens of cars in his store were sold out. As soon as Wuhan car companies cut prices, they “exploded directly.”

As of mid-to-late March, no one has placed an order in Liu Cheng’s shop for a week. “Everyone seems to have an illusion that this car can be cheaper. The group of people who originally planned to buy the car are not buying it now, and are waiting and watching.” He joked that in 2021, four or five cars will be sold a day, ” Now playing billiards is the main business of the store.”

No one knows how long this price war will last

In order to extinguish consumers’ wait-and-see sentiment, car companies such as Weilai, Ideal, Leapao, Denza, and Lynk & Co refused to join the price war and promised to guarantee the price for 90 days.

“90 days is the time when consumer sentiment is most likely to explode.” A practitioner of a new car-making force explained to “Later Auto” that these car companies also leave room for their own choices after 90 days.

He believes that there are three major characteristics of brands that choose to insure:

  • Small inventory, such as the new car-making forces that adopt the direct sales model;
  • There is no room for price reduction or the price reduction space is small, such as zero running;
  • They have just released a new car or are about to release a new car. In order to ensure brand power, they give reassurance to old users, such as Ideal, which just released the L7 at the beginning of the year, and NIO, which will release the new ES6 in the first half of the year.

Some local governments have also begun to come to the rescue to help enterprises share the cost. The Jiading District of Shanghai launched a subsidy policy. Users who purchase products from local car companies such as SAIC, Volvo, and NIO can enjoy a subsidy of 10,000 yuan or 20,000 yuan depending on the price of the product. More than 10 provinces and cities including Beijing, Zhejiang and Jilin have also introduced subsidy policies to support local enterprises.

Judging from past history, the effect of subsidy policy is limited. In April 2015, Shanghai Volkswagen pressed the price drop button to start a wave of price cuts. According to data from the Qianzhan Industry Research Institute, by mid-2015, the average selling price of the auto industry fell by 2.7%. From 2015 to 2017, China launched a policy of preferential tax rates for the purchase of small-displacement fuel vehicles. While stimulating the overall sales growth, it also overdraws some of the demand in advance. In 2016, China’s passenger vehicle sales increased by 13.7% year-on-year under policy stimulus. However, with the end of preferential policies, in 2018, China’s auto market experienced its first year-on-year decline in 20 years.

Zhang Junyi, global partner of Oliver Wyman, compared the price war to “bloodletting treatment” in classical Chinese medicine. Proper bloodletting is conducive to the recovery of one’s own immunity. He believes that accelerating the survival of the fittest is beneficial to the development of the auto industry, so that more powerful companies can participate in the competition in the global market. However, if the scale is not well grasped, it is also a long-term damage to the enterprise itself.

No one knows how long this price war will last.

The research report of Huaxi Securities pointed out that this price war is a “short-term disturbance” due to factors such as sluggish demand after the Spring Festival, increased inventory pressure of auto companies, and continued decline in demand for joint venture fuel vehicles, and is “expected to end by the end of March.” Zhang Junyi told “Later Auto” that the reason why most of the promotions are until March can be understood as psychological warfare, “If the demand does not come up, the price war will continue.”

Li Haitao, a veteran automaker who has been in the industry for more than 10 years, believes that every price war is a process of elimination. “If no one is eliminated, it means that we will continue to fight.” He estimates that there will be another 2-3 rounds.

The auto industry invests heavily, has limited profit margins, and relies on sheer scale for returns. Once consumption is sluggish, the cars produced by auto companies cannot be sold, and the risk is greater than most industries, and they may lose money or even go bankrupt. Two years ago, Musk said that Tesla and Ford were the only two U.S. car companies that had not gone through bankruptcy reorganization.

Therefore, once the market is depressed, car companies are often willing to cut prices in exchange for cash in order to survive. During the financial crisis in 2008, Volvo S80, the eighth-generation Accord, Camry and other models all saw significant price cuts. In 2018, the winter of the auto market and the imminent implementation of China VI standards, BMW launched a price war in January, and the price of the 5-series luxury cars was reduced by 47,300 yuan. Subsequently, the price war was transmitted from luxury brands to self-owned brands such as Great Wall and Changan.

In the price war in 2018, Japan’s Suzuki Motors sold its equity in China for 1 yuan, completely withdrawing from the Chinese auto market. BAIC Huansu stopped production for 40 days. Automakers such as Chongqing Lifan and Qoros basically disappeared from the mass market after this year. Pang Da Automobile Group went bankrupt.

“In the past, some companies fought fiercely in the price war, and some companies did not participate. This time, they are all fighting, but they are not fighting as hard as before.” Li Haitao said. Coupled with the participation of new energy car companies, the price war this time is more complicated than before. Sun Shaojun said in a live broadcast, “The panic about the value retention rate of fuel vehicles has caused customers to switch to new energy sources in advance.”

The price war between car companies has not yet ended, and the impact of the price war has quietly spread to the more influential links in the industry. The sales of new energy vehicles have slowed down, and the aftermath of the rapid expansion of battery factories has emerged. “Later Auto” learned that Ningde era’s battery orders have also declined. Recently, some Ningde era factory production staff who used to work 6-7 days a week and worked 12 hours a day began to take a double break.

Title map source: Midjourney

Song Hang, Liu Cheng, and Li Haitao are pseudonyms in this article, and Li Zinan also contributed to this article

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