Further discounts offered by carmakers in a price war in mainland China’s electric vehicle (EV) market could ensnare even the likes of top seller BYDGoldman Sachs said.
Its net profit could become zero if BYD offers another price reduction of 10,300 yuan (US$1,421) per vehicle, a fresh sign that an escalating price war in the world’s largest EV market will become detrimental to the fast-growing industry, the US bank said in a report released on Tuesday.
“If another 10,300 yuan price cut comes about (in line with our assumption for BYD), we estimate overall industry profitability could turn negative in 2024,” Goldman said. The discount would represent 7 per cent of the company’s average selling price for its vehicles, Goldman added. BYD mainly builds budget models priced from 100,000 yuan to 200,000 yuan.
Since July last year, the overall profit for EVs across the board has declined from 2,100 yuan to negative 1,600 yuan, driven by a 21,000 yuan price drop, or 11 per cent of the cars’ average selling price, the report said.
Weak interest in EVs Due to concerns about a battered economy and incomes during the first quarter of this year have resulted in a wave of price cuts at key carmakers on the mainland.
BYD, the world’s largest EV maker, fired the first salvo in the price war in February, launching a new version of the Qin Plus DM-i, its plug-in hybrid, with prices starting at 79,800 yuan, 20 per cent below the previous edition. BYD has since slashed the prices of nearly all of its cars by 5 to 20 per cent in a promotional campaign aimed at accelerating a transition from petrol vehicles to EVs in China.
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Prices for 50 models across a range of brands have dropped by 10 per cent on average since, Goldman said.
On Sunday, Tesla lowered the prices of its Shanghai-made Model 3s and Model Ys by more than 5 per cent, hot on the heels of price cuts it made in the United States, its biggest market, on Friday.
The next day, Li Auto, a major Tesla competitor on the mainland, reduced the prices of all its vehicles by up to 5.7 per cent to bolster deliveries.
Tesla rival Li Auto cuts prices as EV discount war spreads to premium market
