Price wars: only 2 of more than 30 Chinese electric car makers are making a profit

Electric vehicles account for more than half of all new car sales in China, but the vast majority of brands are operating at a loss while selling electric cars.

This situation arises from fierce price competition. Currently, only two electric vehicle companies in China are profitable: BYD and Li Auto. More than 30 other Chinese automakers are in the red.

Meanwhile, three electric vehicle manufacturers that have already released their financial reports for the second quarter— Xpeng, Zeekr Intelligent Technology, and Leapmotor — registered a total loss of 42.9 billion yuan ($6 billion). Although this loss has decreased by 20% compared to the same period last year, it has sparked new concerns that further discounts could harm the industry.

"Time is against many companies as they need to survive in this brutal price war," said David Zhang, Secretary-General of the International Intelligent Vehicle Engineering Association. "When they run out of money amid significant losses, automakers will have to scale back their operations."

For example, the well-known electronics supplier Xiaomi, which successfully entered the electric vehicle market in March, stated last week that it will take some time before this new business area becomes profitable. This is due to enormous development and marketing costs. The company's first mass-produced model, the SU7, is one of the biggest hits of the year.

In the last quarter, Xiaomi delivered 27,307 SU7s to customers, with a starting price of 215,900 yuan (approximately $30,300). The loss per vehicle can reach 68,000 yuan (around $9,500) with a planned sales volume of 60,000 units in 2024. In its financial report, Xiaomi stated that it aims to deliver 120,000 electric vehicles for the entire year. To meet their sales targets, companies are agreeing to lower prices and attract potential buyers with discounts.

Electric vehicle manufacturers are facing a dilemma—either lose market share by maintaining prices or sacrifice profit by increasing sales volumes. In February, BYD, the world's largest electric vehicle manufacturer, reduced prices on nearly all its cars by 5-20%. Following this, prices for 50 models from different brands fell by an average of 10%, according to a Goldman Sachs report in April.

Analysts estimate that the profitability of the entire Chinese electric vehicle industry could turn negative this year if BYD cuts prices by another 7% (around $1,450).

Source: SCMP