"Signs of a Bloodbath by Year-End"
In China, the world's largest automobile market, a fierce price war has erupted, starting with a dramatic discount by the leading electric vehicle manufacturer BYD. Experts predict that this will accelerate a market shake-up, warning that a "bloodbath" could occur.
According to Bloomberg News on May 28, BYD will reduce its retail prices in China by up to 34% through the end of June.
Bloomberg assessed that BYD's discount sales have revealed the troubling situation in the Chinese auto market. Analysts such as Tim Hsiao of Morgan Stanley stated that this move could trigger a prolonged price war, with ripple effects extending into the second half of the year. Tu Le, director of Sino Auto Insights, said, "This is a signal that a bloodbath could occur by the end of this year," adding, "This situation could be the first domino to put pressure on struggling startups like Neta and Polestar."
Competition in the Chinese auto market has recently intensified. In April, Geely's compact hatchback Xingyuan overtook the BYD Seagull to become the top-selling vehicle in China, and smartphone manufacturer Xiaomi also entered the automotive sector. In particular, BYD's aggressive pricing strategy is seen as increasing pressure on Western brands. Volkswagen, Mercedes-Benz, and BMW have chosen not to join the price war, effectively giving up part of their sales in China. Last month, Tesla's factory shipments in China declined for the seventh consecutive month.
Wei Jianjun, chairman of Great Wall Motor, recently warned in an interview with China Sina Finance by referencing Evergrande Group, a symbol of China's real estate crisis. He said, "There is an Evergrande in the auto industry, but it just hasn't collapsed yet." While he did not name specific companies, he questioned, "In recent years, the price of some products has dropped from 220,000 yuan to 120,000 yuan. What industrial product can be discounted by 100,000 yuan (about 19 million won) and still guarantee its quality?"
A representative example of the cutthroat competition in China's auto market is the so-called "zero-kilometer" used cars. The previous day, China's Ministry of Commerce convened major automakers to discuss this issue. According to Li Yanwei, an analyst at the China Automobile Dealers Association, companies that fail to meet sales targets transfer new cars to financial firms or used car dealers, resulting in virtually new cars with zero kilometers on the odometer appearing in the used car market. Although these vehicles have not been sold to actual consumers, companies use this tactic to count them as sales. Chairman Wei estimated that up to 4,000 sellers have posted listings for zero-kilometer used cars on online platforms.
According to research firm JATO Dynamics, more than half of the 169 car manufacturers currently operating in China have a market share of less than 0.1%.
However, some observers note that although predictions of a shake-up in the Chinese auto market have persisted for years, the actual number of companies has increased. Consultant Michael Dun commented, "BYD's price cuts will push some weaker companies out of the market," but added, "However, whenever one company falls, a new player like Xiaomi or Huawei emerges and enters the market."
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