(Economic Observer) How long will the "quality rise and price fall" in China's auto market continue?

　　China News Service, Shanghai, March 19 (Pufan) On the one hand, the automobile category is "blooming", with new and old car companies launching new products and new brands at an unprecedented speed; on the other hand, the "price war" is fierce. Under the competitive strategy of leading companies to both "increase allocations" and "cut prices", a large number of peers chose to follow suit.

As a result, the cars are getting better and better, and the prices are getting lower and lower.

　　These two "aspects" can be said to be a true portrayal of the current Chinese auto market, but they are also applicable to the American auto market a hundred years ago.

"All heroes rise together" can also describe the American automobile market at that time. Auto giants such as Ford, General Motors, and Chrysler were all born in that era.

But more of them are those brands that were once glorious but have now disappeared in the long history - Packard, Hudson, Studebaker...

　　Zhao Chunzhang, head of the automotive industry and senior consultant at Rees Category Innovation Strategy Consulting, said that based on past business practices and observations, after full category competition, there are often no more than 10 brands that can survive.

For example, in the early days of the American automobile market, there were nearly a hundred brands, but in the end only 13 influential automobile brands survived.

At present, China's automobile elimination competition has begun. Taking new power brands as an example, the number has been reduced from 48 at the peak in 2018 to 21.

　　Industry insiders define the current Chinese auto market as a state of "perfect competition."

After BYD fired its "first shot" in February this year, many independent, joint venture and new power brands have entered the "price war".

According to incomplete statistics, so far, about 30 car companies have joined this round of "price war", with price reductions ranging from a few thousand to tens of thousands of yuan (RMB, the same below).

The form of "price war" is not limited to direct price reduction, but also includes gift rights and interests, value preservation and exchange, etc.

　　"Nowadays, no company can gain an absolute advantage in the market based on its own strength. Therefore, it can only increase sales through differential pricing." Yang Yongping, president of the industry think tank Yiou Automobile, told a reporter from China News Service that lowering prices in exchange for market share This is the basic logic of the current "price war".

　　In other words, in the current Chinese auto market, various auto companies have gradually "converged" in terms of products and technology, and it is difficult to widen the gap in product competition.

Wang Ning, director of the Automotive Industry and Technology Strategy Research Center of the School of Automotive Engineering of Tongji University, believes: “In the process of increasing homogeneity on the product side, who can better control costs and ensure appropriate profits while reducing prices? It’s easier to win.”

　　BYD Chairman Wang Chuanfu said in March last year that BYD has pricing power in the product price range of 100,000 to 200,000 yuan.

This year, BYD even launched the slogan “Electricity is cheaper than oil”.

Whether these are marketing gimmicks or real facts, BYD does have advantages in vertical integration of the industry chain and economies of scale, and these advantages can help it control production costs.

　　Of course, the "price war" is so fierce, and the overall carrying capacity of the market is also one of the factors that cannot be ignored.

Wang Ning believes that in the short term, China's incremental automobile market is small, and the current competition is mainly based on the existing market game.

　　Yang Yongping also holds a similar view. China's automobile production and sales will both exceed 30 million units in 2023, which is already a very huge market.

"Based on such a market, the growth rate of automobile sales will basically show a slowing down trend. If car companies still want to increase sales, in addition to further exploring overseas markets, they can only eat up others' shares."

　　On the other hand, the "price war" is also a game between new energy vehicles and fuel vehicles.

Data from the China Association of Automobile Manufacturers shows that from January to February 2024, China's automobile production and sales increased by 8.1% and 11.1% respectively year-on-year, while the production and sales of new energy vehicles increased by 28.2% and 29.4% respectively year-on-year, which was significantly higher than the overall growth rate.

　　Wang Ning said that as the market share of new energy vehicles expands, it is a relatively normal phenomenon to experience the same price or even lower price than fuel vehicles. As the cost of technology declines, the price reduction of new energy vehicles can also be regarded as a "Price Return".

　　How long will the "price war" in the auto market last?

The industry generally believes that the wave of price cuts may become the main theme of this year's auto market.

Yang Yongping said that the "price war" is still in the climbing stage and is expected to reach its peak after this year's Beijing Auto Show (May) and may gradually level off until the fourth quarter.

(over)