China's EV makers return to fast lane helped by government subsidies tailwind
China's premium electric car makers can expect a smooth road ahead of them in 2024 as both consumer demand and product margins improve, giving the assemblers a respite from a bruising discount war which has already resulted in the demise of several competitors.
Major players Nio, Xpeng and Li Auto, all felt the impact of the three-month race to the bottom, as prices for 50 models across a range of brands dropping by an average of 10 per cent. They are now forecasting a jump in sales for the three months ending June as government subsidies kick in and as consumers return to the world's largest EV market where sales account for about 60 per cent of the global total.
"The subsidy for electric vehicle (EV) purchase gave top players a big boost," said Phate Zhang, founder of Shanghai-based electric-car data provider CnEVPost. "There are also rising speculations that a fierce price war will end soon, which will help them increase vehicle margins."
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Beijing announced in late April that buyers of EVs which replace their petrol cars will receive a subsidy of 10,000 yuan (US$1,380) and the incentive will be offered until the year-end.
Xpeng Hong Kong Debut Launch Ceremony at Ocean Terminal in Tsim Sha Tsui (TST). The Guangzhou-based electric car maker has officially announced its entry into the city.Photo Jonathan Wong alt=Xpeng Hong Kong Debut Launch Ceremony at Ocean Terminal in Tsim Sha Tsui (TST). The Guangzhou-based electric car maker has officially announced its entry into the city.Photo Jonathan Wong>
Everbright Securities said in a research note in May that the subsidy could boost EV sales by as many as 2 million units in 2024 as the pace of electrification in China's auto industry accelerates.
China's subsidies for EV buyers, which were first introduced in 2009, peaked in 2014 at 100,000 yuan, propelling a fourfold increase in sales.
Shanghai-based Nio predicted its deliveries from April to June could jump by as much as 86.3 per cent from the previous quarter to 56,000 units; Guangzhou-headquartered Xpeng estimated second-quarter sales would climb by up to 46.6 per cent to 32,000 units while Li Auto in Beijing sees a 27 per cent rise in quarterly delivery volume, which is likely to hit 110,000 units.
Among the EV trio, viewed as China's response to Tesla, only Li Auto has been able to turn a profit.
Deutsche Bank said margins at Nio and Xpeng would improve this year driven by higher sales volumes, better product mix and potentially lower promotional activities.
All of the three carmakers build battery-powered cars with intelligent features like autonomous driving technology and voice-activated control systems.
Last month, Nio launched its mass-market brand Onvo to widen its customer base. The first Onvo model, the L60 sport-utility vehicle can cost as little as 219,900 yuan, undercutting the basic edition of Tesla's Shanghai-made Model Y by 30,000 yuan, or 12 per cent.
The new brand will make a positive contribution to the company's profitability when its monthly deliveries exceed 20,000 units, Nio's CEO William Li told a media briefing last month. The company plans to begin mass production and delivery of the L60 to mainland customers in September.
Xpeng also plans to launch a mass-market brand whose cars are more affordable to middle- and low-income consumers on the mainland.
Nick Lai, an analyst with JPMorgan said some underachieving electric car builders on the mainland will be forced to shut shop amid a cutthroat competition.
"Everybody would agree that we don't need 100 brands in the Chinese auto market," he said. "Some of them will be forced to exit and some will stay. It's fair to say that we will see a lot of consolidation."
China's EV sector, one of the main drivers of the economy, is expected to see sales growth of 20 per cent this year, compared with 37 per cent in 2023, according to a forecast by Fitch Ratings in November.
BYD, the world's largest EV builder, fired the first salvo in the price war in February, slashing the prices of nearly all of its cars by 5 to 20 per cent to accelerate a transition from petrol vehicles to electric cars on the mainland.
Since then, the prices of 50 models across a range of brands have dropped by 10 per cent on average, Goldman Sachs said in a report last month.
Another cut of 10,300 yuan per vehicle by BYD, or 7 per cent of the company's average selling price, could drive the nation's EV industry into losses, the US bank added.
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