Combustible prices threaten to burn out for China’s car makers

By ZHANG Mingrui, ZHOU Shuqi

A raging money fire is threatening to engulf China’s auto market as a fierce blaze of price reductions lights up customers’ eyes.

Since Tesla lowered its prices in January, more than 30 carmakers have thrown everything they have into the price inferno. Everyone is involved from hopeful EV startups like Xpeng and SERES, to big names like Honda and BYD.

‘What matters now is survival’

In the first two months of 2023, sales of passenger cars were 20 percent down on 2022 levels. That is a pretty unimpressive 2.7 million units.

It seems like automakers are willing to sacrifice their short-term profits in the search for long-term market gains. It is a tricky hand to play and there are sure to be at least as many losers as winners. But more than anything this strategy relies on being able to establish a good reputation, a major challenge for some.

It is not optimal timing for Lynk & Co, a joint venture between Geely and Volvo, who have cast their Model 01 onto the bonfire. It is no mean feat to reduce a price that has barely existed, but Lynk & Co are trying. The cheapest model comes in at 159,999 yuan (US$23,164). It is the first time the JV has sold a car for less than 170,000 yuan.

The company is also offering customers the chance to buy into future discounts, which seems likely. A clause in the ownership agreement states that should the price fall in the next 90 days, owners will get the price difference back.

In any case, Lynk & Co functions more like a club than a car dealer. The company is focused on selling packages of financing, maintenance and customer care with the actual car – a 5-door compact crossover SUV – almost incidental.

“What is happening now is a stampede. We expect it will continue for about the next six months. What matters now is survival,” said MU Jun, deputy director of Lynk & Co’s sales team.

LI Xiang, founder and CEO of Li Auto said the knockout game has only just started: “We do not need that many auto brands in the market,” he said. “Lowering the price will not necessarily help you to sell more cars. All you can do is hope it hurts your rivals more than it hurts you.”

Slash-and-burn marketing

Li Auto and NIO, two leading Chinese EV makers, claim to have no plans to join the price war. Unfortunately for them, war is not like that. You can’t just ignore it. Both companies have been doing pretty well through the bleak winter market, but that will mean nothing when everyone else is engaged in slash-and-burn marketing campaigns.

PU Yang, NIO VP in charge of sales, has said the company will not get involved in a price war, especially one driven by internal combustion engine automakers.

NIO believes that current cuts are merely cyclical fluctuations in the transition from gad-driven vehicles to EVs, with the main players being joint venture brands with limited competitiveness.

“NIO will not engage in a price war nor will it respond to current market volatility with price cuts,” said Pu told media yesterday.