Electric vehicles account for more than half of new car sales in China, but the vast majority of brands are making a loss selling electric cars. This is a result of fierce price competition.
In fact, only two electric car companies in China are currently profitable: BYD and Li Auto. More than 30 other Chinese automakers are operating at a loss.At the same time, the three electric vehicle manufacturers that have already released their financial reports for the second quarter – Xpeng, Zeekr Intelligent Technology, and Leapmotor – reported a total loss of 42.9 billion yuan ($6 billion). Although the loss was down 20% from the same period a year earlier, it raised new concerns that further discounts could hurt the industry.
«Time is running out for many companies as they need to survive a fierce price war,» said David Zhang, secretary general of the International Intelligent Vehicle Engineering Association. «When they run out of money amid heavy losses, automakers will have to shut down their businesses».
For example, the well-known electronics supplier Xiaomi, which successfully debuted in the electric car market in March, said last week that it will take some time before its new business area will be profitable. This is due to the huge development and marketing costs.
The company’s first production model, the SU7, is one of the biggest hits of the year. Last quarter, Xiaomi handed over 27307 SU7s to customers at a price starting at 215900 yuan (approximately $30300). The loss on each car can reach 68000 yuan (approximately $9500) with a planned sales volume of 60 thousand units in 2024. In its financial report, Xiaomi said that it plans to supply 120 thousand units of electric vehicles for the whole year.
To reach their sales targets, companies agree to cut prices and attract potential buyers with discounts. Electric vehicle manufacturers face a dilemma: either lose market share by maintaining prices or lose profits by increasing sales.In February, BYD, the world’s largest electric vehicle manufacturer, cut prices on almost all of its cars by 5-20%. After that, prices for 50 models of different brands fell by an average of 10%, Goldman Sachs said in an April report.
According to analysts, the profitability of the entire Chinese electric vehicle industry could turn negative this year if BYD cuts prices by another 7% (about $1,450).
Source: SCMP
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