The process of new manufacturers replacing old ones in the process of establishing a new market order will likely continue for several years until a new landscape is formed, said Cui Dongshu of the CPCA.

(Image credit: CnEVPost)

China’s auto market started the Lunar Year of the Dragon with a new round of price war, and the head of an industry association expressed his views on this.

The price war in China’s passenger car market will remain fierce in 2024, Cui Dongshu, secretary-general of the China Passenger Car Association (CPCA), wrote in the headline of an article published yesterday.

China’s new energy passenger car sales reached 8.88 million units in 2023, surpassing the size of the country’s overall passenger car sales in 2009, Cui said, adding that the country’s passenger car sales in recent years peaked at 24.2 million units in 2017.

With high growth rates in the coming years, 2024 will be a key year for new energy vehicle (NEV) makers to gain a foothold, and competition is destined to be fierce, he said.

For conventional internal combustion engine vehicles, NEVs at the same price will put manufacturers under tremendous pressure, Cui said.

At the same time, fuel vehicles are also faced with slow updates and low intelligence, relying more on offering favorable prices to attract customers, he said.

From the perspective of NEVs, the cost of building vehicles has dropped as lithium carbonate prices have fallen and battery costs have been lowered, Cui said, adding that the scale effect brought about by the rapid development of NEVs has also led to more profit margins.

In the passenger car price wars of previous years, carmakers typically made promotional efforts at the end of each year that were about 4 percentage points higher than at the end of the previous year, Cui noted.

However, the price war in China’s passenger car market in 2023 was intense, with year-end promotional efforts increasing by 6 percentage points over the same period of the previous year, according to Cui.

Typically, passenger car prices stabilize between August and the end of each year, but the price war became more intense in the second half of 2023, with the end of the year seeing strong promotions, Cui noted.

The root cause of the recent price war is that new technologies are replacing old ones and NEVs are replacing fuel vehicles, he said.

In the process of establishing a new market order, the process of new manufacturers replacing old ones could continue for several years until a new landscape is formed, according to Cui.

With the rapid increase in penetration of NEVs, the market size of traditional fuel vehicles is gradually shrinking, and the conflict between the huge traditional production capacity and the gradually shrinking fuel vehicle market is bringing about more intense price wars, Cui said.

As scale determines cost and business survival, most manufacturers will prioritize share protection, so further intensification of price competition is inevitable, he said.

BYD (OTCMKTS: BYDDF) rolled out new, lower-priced variants for two sedans yesterday, launching a strong new offensive against traditional fuel cars. Car companies including SAIC-GM-Wuling and Neta Auto have since followed BYD’s move.

BYD rolls out new, less expensive variants for 2 NEV models to further undercut fuel cars