China’s electric vehicle (EV) industry is struggling under soaring financial pressure. Such problems are symptomatic of the challenges facing the country’s beleaguered property sector, most famously punctuated by the collapse of developer Evergrande. Industry leaders and analysts alike are sounding the alarm on intense competition between manufacturers. They caution that a price war might lead to unprecedented fiscal stress across the automotive ecosystem.
Wei Jianjun, a major force in China’s automotive industry, recently sounded alarm bells about the unsustainable direction of EVs. He made very clever and alarming parallels to the problems currently gripping the real estate industry. He stated, “An ‘Evergrande-like’ crisis already exists in the automotive industry.” At first glance, this statement might seem to be cause for alarm. The same perfect storm that wiped out the REIT sector might now be endangering the auto industry.
The lasting impact of the current pricing war brought massive discounts in the EV market, with some reductions as much as 34%. Take the super-adorable Seagull mini hatchback, for instance—its price has fallen from about $10,000 to just under $7,700. Such extreme discounting has worried many in the industry over whether these types of price reductions can be sustained.
Ma Hui, another used car seller, explained the dangers of this price war. “With the price dropping like this, a lot of buyers might wait,” he noted, indicating that consumer behavior may shift as potential buyers anticipate further reductions. Ma also pointed out that all independent used car sellers lost their shirts last year. This situation highlights the systemic negative consequences of the current state of the market.
Industry analysts have been cautioning that cutthroat competition is seizing China’s EV industry. This fierce competition is producing what Ma Hui terms a “race to the bottom.” That continuous demand for deeper and deeper discounts has built a very unstable foundation. Now companies are at risk of losing profits just to win market share. The People’s Daily echoed these sentiments, stating that “Disorderly ‘price wars’ squeeze profits across the chain, impacting the entire ecosystem and risking income declines for workers.”
China’s government has indicated that it wants to end the months-long price war. But there remains a healthy skepticism about whether authorities will be able to successfully intervene. The China Association of Automobile Manufacturers noted that “a certain automaker has taken the lead in launching significant price cuts and many companies have followed suit, triggering a new round of ‘price war’ panic.” This means that without major intervention from outside the industry, this price war could be allowed to rage on uncontested.