China’s car sector careers into price war roadblock

A shake-up in China’s auto sector has intensified as savage price wars threaten to wipe out weaker rivals in the world’s largest car market.

Shares of the country’s leading player tumbled earlier this week after electric-vehicle giant BYD took a chainsaw to the cost of more than a dozen models. Its cheap Seagull hatchback is now in showrooms at under US$8,000, a $2,000 discount.

In a Reuters analysis, industry insiders warned of “the start of a deadly domino” effect. “This points to a bloodbath later this year,” Tu Le, the managing director of Sino Auto Insights, said.

“It’s the first domino that will finally put pressure on weaker players, [such as] startups like Neta and Polestar that have been teetering on the edge,” he pointed out.

Pricing pressure is hammering the bottom line.

Wei Jianjun, chairman of Great Wall Motors

Stalling numbers:

• Car sales in the world’s second-largest economy fell 14.6% in April compared to the same month last year, the China Association of Automobile Manufacturers reported.
• “The slowdown has pushed major manufacturers to cut prices,” it said, citing “a lack of consumer confidence” for the “downturn.”

Delve deeper: Fears are growing the auto industry faces an “Evergrande moment.” This was a reference to the collapse of the real estate group that crashed China’s property sector.

Between the lines: “An Evergrande in the automobile industry exists … The pricing pressure is hammering the bottom line,” Wei Jianjun, the chairman of Great Wall Motors, told Sina Finance in an interview.

Big picture: China’s car market is already crowded and highly competitive, with 169 automakers. More than half hold less than 0.1% market share, Reuters revealed.

China Factor comment: Life in the slow lane is stalling Chinese EV manufacturers as the price war wipes out profits. Overcapacity has only fueled the race to the bottom.