China's Auto Price War Is Now Out Of Control

Due to the ability of being able to produce more cars than needed, China is seeing a price war gone wild. This has resulted in huge price cuts on new cars. Without these massive price cuts, manufacturers cannot sell enough cars to keep production lines moving. Part of this price war is rooted in the reality that China must move cars to keep its people employed and take up some of the slack it is experiencing in its housing and export markets. 

As for the main driver or motivation of these sales, auto sales in China plunged by 35% from a year earlier to 1.65 million units in January 2023. This was the lowest figure for the month since 2012 data from the China Association of Automobile Manufacturers (CAAM) showed. It was also an 8.4% drop when compared to sales a month earlier.

As might be expected, the Chinese government will and can make decisions that benefit them and only China. Those of us living in more free market economies tend to forget how skewed things can become when a government injects its desire upon supply and demand. This is done in an effort to influence not only what people buy but more explicitly the type or their preference. 

It is no secret that China wants to dominate the Electric Vehicle market come hell or high water, by fair means or foul. The current disruption in the Chinese automobile market feeds into such a scenario. The current Chinese automobile price war is being ignored by most mainstream media or considered a nonevent but has important ramifications. Currently, China is the clear leader in procuring and refining the materials necessary as well as assembling EV battery cells.

Whether EVs are really good for the environment and rushing to make fossil fuel vehicles obsolete is still an issue of great debate. The fact much of the electricity needed to power EVs comes from fossil fuels will remain the reality for years. Feeding into this debate are also issues about materials needed for batteries, heavy EVs rapidly chewing through tires, and the waste created by dooming over 1.4 billion vehicles to an early death. 

Below are two important facts;

•  By the end of the first quarter of 2022, there were approximately 1.45 billion vehicles in the world, of which about 1.1 billion are passenger cars. That means there is a car for every 7.18 people on the planet.
• China’s demand for coal has surged from 1990 to 2019. China consumes more coal than the rest of the world combined. As of 2020, coal made up 56.8 percent of China’s energy use.
  

All Aimed At Hurting "Foreign Competitors"?

The unfolding price war in the Chinese auto industry will not lead to any positive effects over the long term. This discount phenomenon has also sucked foreign automakers into this price war and they are taking it on the chin and suffering big time. As usual, one of the biggest benefits for China, when it crafts a new policy, is it generally hurts its "foreign competitors."

Caught up in the worst price war ever, foreign automobile brands are tasting the bitter fruit of entering joint ventures with the Chinese. A recent report from China Insights ( https://www.youtube.com/watch?v=tBxcJIjlQuA ) details how without these price cuts, it would be far more difficult for Chinese automakers to move cars.

There is also talk China may soon institute new emission rules and regulations that make these cars unsaleable. After the new regulation, it is said even new cars cannot be sold as new but can only be resold once purchased. This means all gas cars are going with discounts up to 50%. As expected, this is also driving the price down for electric cars. 

We are talking about hundreds of thousands of cars by companies such as BMW, VW, Toyota, and Honda. This is a disaster for the legacy car makers. It means they will lose billions of dollars. Sales of the legacy brands we in the West know best have hit a wall. These cars are sitting idle in showrooms all over China gathering dust. We are looking at massive losses. The bulk of this pain will hit Europe harder than America and this puts an arrow in the idea stronger ties with China would benefit the EU.

In a video that came out on March 19th ( https://www.youtube.com/watch?v=81H3gZ56_vw )The Electric Viking reported the inventory of these cars has exploded to 70 days, the most in a decade. This increased from 57 days only weeks ago. This is occurring at the same time many manufacturers are throttling back production. Still adding to the confusion are claims of supply bottlenecks and shortages of cars here and there across the world. All this screams that the auto industry will be interesting to watch going forward. 

 

(Republishing of this article welcomed with reference to Bruce Wilds/AdvancingTime Blog)