- The Chinese government is attempting to address concerns of overcapacity and the effects of a crushing EV price war.
- The Chinese government says it may take action against brands that underprice vehicles to hurt competition.
- Chinese President Xi Jinping asked if every province needs to invest in EV infrastructure.
China’s electric-vehicle market is impressive. That’s pretty well established by now; I’ve been to China several times, driven quite a few cars from different brands, and walked each time away gobsmacked by just how far ahead the country is compared to the rest of the world.
And there are so many models to choose from. I can’t imagine how exactly these brands survive—every other day it seems like a new model or new brand comes out, vying for the attention of what is a limited number of Chinese consumers.
Evidently, I’m not the only one who thinks so. This week, several Chinese regulators and politicians, including President Xi Jinping himself, have called for the industry to put the brakes on some of its investments and reconsider just how they’re doing business.
Oh, and that price war? That needs to end.
For those not in the know, China’s EV companies keep lowering prices more and more to see if they can starve out their competitors; a kind of automotive survival of the fittest. Spearheaded by giant BYD, the whole industry has placed immense pressure on suppliers and partners to cut prices to drive down costs.
This brutal price war has resulted in cheap EVs, like the $8,000 BYD Seagull, but it comes at the expense of the health of smaller suppliers. Some have complained that they aren’t paid on time at all.
Photo by: Kevin Williams/InsideEVs
Chinese car brands came together a few weeks ago to agree to institute a standard 60-day payment schedule to their suppliers, but the government wants to go further. Earlier this week, Chinese state media site Xinhua News reported on a meeting between top officials in the Chinese government.
Specifically, these officials came together to encourage tighter price regulation and better long-term regulation and competition in the Chinese EV market. They called for the end of “irrational price cuts,” which they defined as some competitors intentionally underpricing their vehicles below cost to make sales. If this continues, the government may intervene.
But, now things have gone even further than that. The Financial Times reported on more criticism from China’s government, this time from President Xi himself. He was critical of several new technologies, including artificial intelligence and EV development, but singled out the local government-level investments into car companies too. “Do all provinces in the country have to develop industries in these directions?”, Xi reportedly asked.
Photo by: Kevin Williams/InsideEVs
He’s correct to wonder why that’s happening. Chinese automakers haven’t just received state support; they’ve also gotten it from local governments aiming to prop up their own immediate economies. And that has helped feed an oversupply and overcapacity problem.
Now, China is clearly going to continue to press onward toward making EVs; that’s for certain. However, it’s becoming increasingly clear that the level of EV investments and models just is not sustainable. Even with a market of 1.4 billion people, there’s no room for all of these competitors. Lots of EV brands are not financially profitable, and there’s a big problem of too many factories for too little demand.
It’s not entirely clear how China’s government will put the screws to its EV industry to fix its problems. Clearly, there are too many competitors, and the consolidation of brands will have to happen sooner rather than later. That was bound to happen over time; maybe the process will move a bit more quickly now.
Contact the author: kevin.williams@insideevs.com
