The Grim News For Chinese Automakers Only Gets Worse

The bad news for automakers in China is only getting worse

Chinese EV manufacturers have taken control of the country’s auto sector.

It’s bad news for Tesla and other EV manufacturers attempting to remain relevant in China as EV buying declines.

The Chinese auto sector is one to keep an eye on as it threatens a number of international automakers, including Tesla right now.

Chinese automakers outperformed foreign automakers like Ford and GM in terms of sales last year. According to a prediction made last month, growth has continued: Chinese domestic enterprises are expected to take control of the bulk of the country’s auto market this year for the first time.

Not only are there more and more electric car customers there, but they are also purchasing Chinese-made EVs rather than imports. According to data from the Chinese advisory firm Automobility Ltd., sales of gas-powered cars had decreased in China as of the first half of 2023, while sales of “new energy vehicles” (including EVs and plug-in hybrid EVs) had increased significantly. More than 80% of NEVs sold were made by Chinese companies.

According to a Morgan Stanley paper dated August 17, however, some of that demand for automobile purchases in China is beginning to decline.

According to the bank’s analysts, “a number of EV makers have launched limited-time campaigns amid poor demand visibility and macro uncertainty,” adding that pricing competition is anticipated to heat up this quarter.

The sector will undoubtedly experience three effects as a result of the demand squeeze.

China’s slowing vehicle market is actually terrible news for established automakers.

First, Morgan Stanley analysts warned that it might already be too late for automakers like Ford and GM to try to strategize recouping their losses in China.

The statement stated that in addition to having to compete with vertically integrated, more affordable EVs in China, “legacy [automakers] also have to reverse the trend of decreasing sales volume, profit, and share in a decelerating domestic market.”

According to Morgan Stanley, traditional businesses are facing a multifaceted storm and are aware of the quality, variety, and price of Chinese products.

Jim Farley, CEO of Ford According to a Sentieo transcript, the automaker’s CFO, John Lawler, stated at a Deutsche Bank conference in June that the company “has been pretty consistent about the strength we see in the BEV capability of the Chinese OEMs.” “I believe that we have moved past the point where you can ask whether they will or won’t,”

Price reductions are no longer as beneficial for Tesla.

Second, as a result of weaker demand, many automakers—both Chinese and foreign—are lowering their prices. Tesla has frequently reduced the price of its well-liked vehicles there, as have Chinese companies like the enormous BYD, to the point where a (temporary) truce in the pricing war was declared. That didn’t last very long, and Tesla has once again had to make cuts in order to compete with Chinese companies.

At the company’s Investor Day in March, Tesla SVP of Automotive Tom Zhu stated, “We’re still expanding our market share in China.” We have a pricing adjustment, especially at the beginning of the year. Following that, we actually created a massive demand—more than we could truly meet. Concerning China’s market share, I’m not too worried.

However, Morgan Stanley analysts said Tesla’s additional promotional activities were “of particular concern,” even though early price drops may have increased demand.

According to Morgan Stanley, the cuts are all but ineffective given China’s slowing domestic market. No matter how wonderful Tesla’s most recent deals are, low interest rates still win.

While local demand declines, Chinese businesses are making progress elsewhere.

Third, this merely indicates that Chinese businesses will keep pushing forward internationally. The Chinese EV manufacturers are ignoring the declining market and moving on to the next endeavor.

“In our view, China will shift from being an importer to an exporter of cars as supply dynamics invert this decade,” analysts wrote in the note.

According to consulting firm KPMG, Chinese EV manufacturers have already entered Europe and are eyeing the US as their next market. The industry is keeping a close eye on them as they make their move.

Leave a Reply

Your email address will not be published. Required fields are marked *