China's EV Price War

This is the Bewigged Chateau three and Eevee that that's popping up on the streets of Sydney, Berlin and Sao Paulo and more Chinese EVs like it, are being exported to the rest of the world. In fact, Chinese carmakers now account for half of all global TV sales. They benefits from access to minerals and the cost effective supply chain built over years. And from 2016 to 2000, 19 Chinese carmakers received $28 billion in government subsidies. That's rebate program was phased out in 2022. So now Chi

na's entering a new stage of EV adoption. The transition from traditional I see to new energy era is still unstoppable. So I think we're still very hopeful it will bring a lot of growth opportunities for us. Carmakers want to make inroads in smaller towns and rural areas. But to do that, pricing is key. The competitive auto markets is in the midst of a price war started by Tesla two years ago, showing no sign of slowing down. BYD Xpeng Geely and Li Motor have all slashed prices to follow suit, r

aising questions over the sustainability of the strategy. When you look at the, you know, the intense price competition that you're seeing in China right now, that's not sustainable for any company. The price war that's happening, it's a Game of Thrones price war. It's happened in Beijing. The record deliveries don't always translate into bumper profits. When b y overtook Tesla as the world's top seller last quarter. Preliminary profits for the year were short of estimates by half a billion gran

d, and shares slumped with the lack of government funding and a slowing domestic market. If you make a that through survive, we'll have to come up with even better, cheaper products and sell to overseas bias that may not be friendly to cars made in China. Linda Liu. Bloomberg News. All right. Let's bring in Linda now with that piece. And also joining us is our guest from Beijing, Eugen Ding, head of China Autos Research at HSBC Shanghai Securities. Linda, I'll start with you. How might this pric

e war really impact earnings for some of these automakers now? That's a really rough time for everybody in the EV market Right now. BYD is leading the charge with slashing prices on a lot of their popular models. This is continuing a price war that was started by Tesla a couple of years ago. So it's really hitting the margins and profitability of these automakers now. By the way, is the top seller. So to have some leeway to wage this war. But you can't say the same for some of these smaller play

ers, like exporting the auto or NIO whose sales are suffering as well as know, taking a hit from this price war. What? So we laid out the companies coming out with earnings this week, apart from the actual numbers. Is there any specific guidance or tone that you're looking to hear on the price war from executives as they talk to investors? Yeah, the executives actually met in Beijing over the weekend for the top level events and they actually laying down some pretty ambitious goals. You've got t

he car business unit leader from Huawei who's saying they want to be the top player and offering advanced driver systems. So having a lot of high tech features and cars that are working with Huawei. And you've also got others like Neos, Robin, William Lee, saying that, you know, we are trying to improve our battery technologies to make sure that customers are really getting good value from their cars, which is more expensive than some of the rivals. So you've got these top level accessories tryi

ng to think of new ways to attract customers in the coming year. CHANG I'll bring you in right now. And what you're seeing when it comes to these price wars are are you thinking price cuts are likely to continue in the space? Yeah, I would say I'm trying to be mainstreaming well, basically in the process of consolidation. So during a process of consolidation, I would say the pricing pressure would be part of life now because the laggards and probably struggling at a sub scale might have to cut t

he price for more volume just to stay relevant. And and the same price action has been noticeable from the leaders such as Biden and Tesla. So this isn't part of life, but the key debate, all the heat watch here is when you cut the price cap, boost the volume to partly mitigate the pricing pressure. What we discussed earlier, you can David, here. So you talked about volume then. What are your assumptions and how much they sell? And just put that also into context of the penetration rate, which I

believe based on your report here, is at 43%. Yeah. So our full year forecast for the TV penetration this year is around 45%. And also over the weekend, the IMF talks about in every event this last weekend that in a coming three months, the high frequency high frequency data, probably over 50% of penetration in China. So we do notice strong EV demand picking up starting from March posted the week and now with the in January and February. And partly we've seen the wait and see consumers who are

waiting for a better price probably ready to commit their orders. And what does this mean for I mean, the markets seem to be quite concerned about the overcapacity in the space here right now. And also, when it comes to if you can cut prices, that's going to lead to more. You know, do you buckle tensions with the U.S., with Europe? You know European markets as well. I just want to how should investors look at some of these concerns? Yeah. Two part of the question, first of all, over capacity, I

think government to stop issuing you knew every production certificate saying 17. The problem is the existing status quo is is still simply too much. We have too many brand too many models on the market. So the industry is due for the consolidation. We do notice there are some smaller player reported to a hard production and not paying their employees. And also many of the brand talked about cutting the capacity, existing capacity in China. So we've already see the industry consolidation in the

mill on the move and the market is basically the key. The market mechanism is the key drivers in the process. On the other side, to navigate increasingly more complicated global trading environment, we do see the potential in market supply could be a rather effective way to mitigate these trade tension as well as the tariff and risks. For example, BYD has been reported to open the new plant in in in Europe, in Asia, and also South America. You see, this is Linda here. I'm really curious about wh

at you think of Geely. It's an interesting company. Who just said that they aspire to be the Volkswagen and the new energy vehicle age. How do you think Geely is going to balance all of their brands to really try to come out ahead? Yeah, great question. But we are currently restrict our own Geely. But to the topic about incumbency company moving towards the electrification, we do notice this couple of incumbency name has been doing quite a good job by establishing a dedicated EV brand and also a

ctively employee Direct sell and also advanced driving assistant functions into the new vehicle. So both party, both the EV pure play as a as well as the incumbency moving towards the EV going to remain to be the mainstream player for the EV playground. You should as a follow up I guess to you mentioned incumbent which among among the stocks that you cover, among the companies that you cover, which one has the least visibility in terms of just looking at it? That's a year ahead or five years ahe

ad. Oh, yeah. A great question. I would say the encumbrances as a group in general is facing a more challenging environment in terms of the competition. The ICE business has been contracting in terms of the profitability due to lack of scale and also severe pricing. Well, I would say generally don't find bike on our coverage, probably has a bit of a rough patch to go through while their business is still on the expansion face. And while the incumbency profit pool has been shrinking and this has

been reflected in the reported 2023 earnings, and what does it mean for, you know, the number one bid then? I mean, obviously they maintain that lead amidst this fierce competition. What is the next road for them? Yeah. Great question. So first of all, I would say they have aggressive price action by introducing the budget version. So although this could prop up, this should partly pressure on the profitability. But on the other hand, lower entry pricing point also attract more demand. So the or

der book momentum and increasing scale will help help them partly mitigated. The pricing pressure and the continuous scaling in China would be a key focus. And another leg of growth probably coming from the oversea market we talked about a bit has been expanding overseas and they have been expanding their production over there and also given a rather more favorable competitive environment in oversea markets. They obviously business has been really much better margin than the domestic market. So

domestic market, we're also expecting in the second quarter the platform refresh, which is supposed to drive from the second half of the year, another round of the product cycle refreshment. Hey, Linda, question to you. Here you have new entries you've shown me you have while we're entering the competition. And you can listen to the question because this also goes to you in a moment here. But I want to get your thoughts, Linda, on what this means for the for the current players, of course, in th

e industry. So these tech giants entering the space is really going to put the focus on high tech fixtures and TVs. Huawei said that that want to be the top end of advanced driver system and show me is really pushing this car ecosystem they coming up with if they want to provide a seamless experience for drivers. You know, you can be listening to an audiobook on your phone and when you enter into a car or pick right up playing it on the stereo. So with these focus on technology is putting the pr

essure on market leaders like Baidu, who actually hasn't had such a big focus on these in-car technologies previously. So now be they said that they're going to catch up and investing a lot more into the sector. And again, it comes back to profitability because these developing days kinds of functions and features aren't cheap. So in the long term, if you want to stay on top, you've got to spend this money. Yeah, I mean, we saw what happened with Apple, right. And your thoughts on new entries an

d how the incumbents respond to these new entrants. Yeah, I think the broader industry context would be EVs are increasingly commoditized as my EV is the next game changer on the technology entrance. Lena just talked about, does that have a different strong differentiation on that front? But I would say the the other Ivy names is also playing strong, catching up. The idea has been has been employing more R&D personnel last year and that in earlier obviously earlier this year that Tech Day they d

o talk about moving towards in-house software generation. So that's supposed to that's supposed to be reflected in a next generation product. And they might starting from the high end models first. So I think everyone is moving because they all understand, as my Ivy is an excellent game changer and the OEM. So who have the scale, who have the in-house software capability, would it be the potential winner?