While Chinese-built EVs are seeing an uptick in global sales, particularly in Europe, the home market has grown concerned that oversupply has become a massive issue. China’s government has reportedly asked the automotive sector to stop lowering prices.
The domestic vehicle war has apparently reached a point that China is in the process of amending national economic laws to stabilize supply and demand.
“The draft amendment, particularly the improvement of criteria for identifying unfair pricing behaviors such as low-price dumping, will help better protect the legitimate rights of consumers and businesses, and promote healthy economic development,” Guo Liyan, deputy director of the Chinese Academy of Macroeconomic Research’s Economic Research Institute, told the government-owned China Daily.
She added that, since China is a socialist nation, the government is obligated to help encourage fair trade practices that “will enhance the appeal and influence of China’s unified national market, thereby providing a sound pricing environment to strengthen domestic economic circulation.”
China’s government has been aggressively subsidizing all-electric vehicles since the early 2000s. The plan was to create a bunch of competing automakers that would dominate the then-burgeoning New Energy Vehicle (NEV) space. Western nations had already started pushing stringent emission rules and manufacturers were signaling that combustion-engine automobiles would soon be supplanted by EVs. China saw this as an opportunity and did everything in its power to focus efforts on building electrified automobiles and establish a global stranglehold on battery production — assuming that it could beat foreign automakers to the punch.
Over the next two decades, scads of new auto brands and specialty suppliers were formed inside China. But many would eventually go under as the dominant nameplates established themselves and garnered sales beyond the home market. China likewise ended its nationally supported NEV purchasing subsidies late in 2022. While business has been good, leadership has grown concerned that China may be building more vehicles than it knows what to do with.
We’ve discussed the issue of “zero-mileage” used cars being sold within the country before. The practice sprang up as a way to help companies artificially boost sales and take advantage of the remaining government subsidies. Many of China’s largest manufacturers are likewise state-owned and some may have additional reasons to prop up their official volumes. Others may simply want to appease their investors with an upbeat quarterly report.
With new-vehicle sales contracting globally, concerns of oversupply have been an issue for many manufacturers. However, Chinese EVs are alleged to be seeing strong demand both at home and abroad. Despite this, The Guardian reported that pricing for electric models has been on the decline and the issue has reached the stage where the government felt compelled to intervene.
From The Guardian:
In recent months Chinese officials have talked repeatedly of the need to combat “involution” in sectors suffering from overcapacity, such as EVs, referring to the phenomenon of investing more effort and money for diminishing returns.
Xi Jinping has spoken of the problem directly. In an unusually blunt speech this month, China’s president criticised provincial governments for blindly overinvesting in artificial intelligence, in computing power and in new energy vehicles, industries that Beijing has identified as strategic priorities but which are also at risk of overheating.
On 23 July, Xi gave another speech in which he stressed the importance of breaking the cycle of “involution” that has gripped parts of the Chinese economy, the world’s second-biggest after the US.
Some of China’s big car companies, including BYD, the EV maker that is seen as China’s rival to Tesla, were summoned to meetings with regulators last month to receive warnings about overcapacity.
In terms of BYD, the report states that the company has repeatedly lowered the price of the all-electric Seagull city car. The small hatchback is supposedly retailing for 55,800 yuan ($7,700 USD) in Central Asia right now. But that’s lower than its official MSRP, which had already seen reductions from the manufacturer earlier in the year. This is also not something that’s exclusive to BYD, as rival automakers have seen similar price gaps on other models competing in the segment.
While not as aggressive, other segments of the market have endured similar price cuts. As with our market, EVs are seeing the largest discounts.
Years of fierce competition has forced automakers to drive down MSRPs. While this is excellent news for Chinese consumers in the market for a new automobile, automakers are growing concerned that some brands won’t survive. From the perspective of the Chinese government, this was always the plan. However, leadership is apparently concerned that it could lose several brands simultaneously — particularly those deemed essential for local communities.
“I am not convinced that the Chinese government will do something to curb in any significant way because so far at least no one’s been really punished for investing too much in strategic priorities,” Antonia Hmaidi, a senior analyst at Merics, told The Guardian.
Hmaidi also noted that most EV manufacturers aren’t yet profitable, with several costing the government a fortune to support as the industrial backbone of local communities.
“We are seeing some changes in specific types of action that the government is taking that are pointing towards this,” she continued. “But we’ve seen these kinds of actions before, and nothing came of it. And ultimately, you would need to provide an alternative to a lot of these local governments, for instance.”
China knows that losing an automaker could effectively cripple local economies and is fearful of there being a chain reaction. Imposing pricing caps is only a temporary solution, however. It is desperate to export more vehicles outside of the country. But that’s not something foreign automakers are interested in — especially when they’re likewise trying to tamp down volumes in a bid to keep pricing up.
Tariffs are sure to further stymie the export of Chinese EVs into Western markets. Europe, which has seen surging sales of Chinese vehicles, placed new tariffs on them last year. But they’re dwarfed by the massive import fees imposed by the United States. Meanwhile, China has imposed sizable tariffs of its own despite having recently ended requirements for mandatory joint partnerships in order for foreign automakers to operate within the country. The whole thing has been a bit of a mess, frankly, with every auto-producing nation trying to break into rival markets without giving up too much ground domestically. But that’s also the nature of the industry since automakers became large enough to become global players.
[Image: aapsky/Shutterstock]
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