Despite the European Union’s imposition of tariffs on China’s electric vehicles to combat low-price dumping and through negotiations forcing Chinese electric car manufacturers to raise prices, the ironic reality is that these manufacturers are still exerting extreme pressure on suppliers to lower prices on components, in an effort to continue a fierce price war.
A recent leaked letter circulating online reveals that He Zhiqi, Executive Vice President and Chief Executive Officer of Passenger Vehicles at BYD Group, wrote to suppliers on November 26, stating that the competition for new energy vehicles in 2025 will intensify, leading to a “decisive battle” and “elimination round.” He requested suppliers to reduce prices by 10% starting from January 1, 2025, in order to enhance the competitiveness of BYD’s passenger vehicles.
BYD is one of China’s largest new energy vehicle manufacturers and one of the leading mobile phone contract manufacturers. In July 2024, BYD ranked third globally with a sales volume of 315,600 vehicles, following only Toyota and Volkswagen, surpassing traditional automotive giants like Honda, Ford, Hyundai, and Suzuki.
Prior to the exposure of BYD’s email, SAIC Motor Corporation also sent letters to suppliers, requesting a 10% price reduction.
BYD and SAIC’s actions indicate that Chinese electric vehicle companies are preparing to continue advancing in the cutthroat price war.
Experts in the automotive industry point out that profit margins in the auto parts sector are on the verge of loss. For example, Junsheng Electronics reported a net profit margin of 3.03% in the third quarter. If all customers demand a 10% price reduction, they will undoubtedly incur losses.
A supplier who previously supplied truck door components to BYD told a reporter from China Economic Net that his company was a BYD supplier since its inception, but gradually withdrew between 2017-2018 primarily due to not making a profit and having an extremely long payment cycle, taking about 10-12 months. According to financial reports, in the first half of this year, BYD’s accounts payable amounted to 207.517 billion yuan, meaning BYD owes its suppliers enough money to create several car companies.
As a result, BYD’s request for a 10% price reduction from suppliers has triggered angry reactions.
One supplier stated in a response letter that BYD’s actions “not only violate business ethics but also unscrupulously overdraw the diligence and resilience of the Chinese labor force, as well as the survival ability of domestic suppliers.”
The supplier further mentioned that BYD, through “ruthlessly squeezing suppliers,” penetrates international markets with “cruel prices.” “This layered squeezing model leads domestic suppliers into a vicious cycle of either being crushed or starving to death, even directly forcing excellent companies into bankruptcy, ultimately leading the industry into a dead-end of low-end competition.”
BYD’s brand and PR department later clarified that annual negotiations with suppliers are a common practice in the automotive industry. “Setting price reduction targets for suppliers is not mandatory but can be negotiated.”
In March 2023, under the “Government-Business” joint subsidy scheme, Hubei Province witnessed the most robust wave of car purchase discounts in history. A B-class sedan that originally cost over 200,000 yuan could be obtained for just 120,000 yuan after discounts. Since then, the “price war” in the Chinese auto industry has not ceased.
Since entering 2024, BYD has become a key driver of the “price war,” introducing the Qin PLUS Honor Edition early in the year, reducing the entry-level price of A-class new energy vehicles to less than 80,000 yuan, 20,000 yuan lower than the old models. Subsequently, BYD released several “Honor Edition” models, including the Dolphin Honor Edition, Han Tang Honor Edition, and Yuan PLUS Honor Edition, all significantly discounted.
Other car manufacturers, in order to retain market share, have been forced into the price war. Some B-class cars are sold at “bargain prices” of A-class vehicles. Even high-end brands are not immune, with examples like selling a BMW i3 for 170,000 yuan, equivalent to half price. In July, due to the price war, BMW suffered severe operational losses, leading to the announcement of ceasing price competition. However, sales plummeted that month, forcing BMW to re-enter the competitive field.
This brutal price war has left scars on everyone in the industry. Data shows that in the first nine months of this year, the revenue of the Chinese auto industry reached 7.3593 trillion yuan, a 3% increase year-on-year. However, the total profit amount was 336 billion yuan, a 1.2% decrease year-on-year, with a profit margin of 4.6%, lower than the industrial enterprises’ average profit margin of 6.1%.
During the first three quarters of this year, SAIC Group’s net profit was 6.907 billion yuan, down nearly 40% year-on-year; Guangzhou Automobile Group’s net profit was 120 million yuan, a 97.34% decrease year-on-year; and Changan Automobile’s net profit was 3.58 billion yuan, a 63.78% decrease year-on-year.
Many electric vehicle companies are even recording negative profits. In the first three quarters of this year, NIO delivered 149,281 vehicles, a 35.7% increase year-on-year; achieved operating revenue of 46.028 billion yuan, a 19.5% increase year-on-year; but recorded a negative net profit of 15.525 billion yuan, meaning a loss of 104,000 yuan for every car sold. Other electric vehicle companies are facing similar challenges. Xiaopeng loses 38,900 yuan for every car sold, Leapmotor loses 25,500 yuan, and JiKe loses 47,800 yuan, while Xiaomi incurs a 60,000 yuan loss for each SU7 sold.
BYD stands out as one of the few electric vehicle companies with a positive net profit. According to the annual report, BYD achieved an operating income of approximately 602.315 billion yuan last year, a 42.04% increase year-on-year, with a net profit of 30.041 billion yuan, an 80.72% increase year-on-year.
In this ruthless price war, casualties extend beyond Chinese car manufacturers to suppliers and overseas car companies.
The extreme low prices set by Chinese electric vehicle companies not only result in losses for themselves and domestic suppliers but also place European and American car companies in a precarious position.
For instance, the price of the BYD Seagull hatchback is 9,698 USD, over 50,000 USD cheaper than the average price of American electric cars.
The Alliance for American Manufacturing stated in a paper that subsidies for Chinese electric vehicles could “ultimately become an extinction event for the U.S. automotive industry.”
Earlier this year, Tesla CEO Elon Musk told industry analysts that without trade barriers, Chinese electric vehicles “will almost certainly destroy most other car companies in the world.”
During the first three quarters of this year, luxury brands like Porsche, Mercedes-Benz, and BMW experienced substantial declines in sales. Porsche’s deliveries fell by 29%, while Mercedes-Benz and BMW’s deliveries decreased by 10% and 13% respectively.
The rapid rise of the Chinese electric vehicle industry is attributed to support from the Chinese Communist Party (CCP), which views electric vehicles as a strategic industry poised to dominate the global market. According to research by the Washington-based Strategic and International Studies Center, from 2009 to 2023, the CCP’s support for electric vehicles accumulated to 230.9 billion USD. Between 2009 and 2017, annual funding amounted to around 6.74 billion USD. Funding significantly increased by double from 2018 to 2020 and has seen another substantial increase since 2021.
To protect its domestic electric vehicle manufacturing industry, the United States raised tariffs on Chinese electric vehicles from 25% to 100% in May of this year.
To safeguard the jobs of 2.5 million workers in the European electric vehicle industry and the 10.3 million workers in related upstream and downstream enterprises, the European Union increased tariffs on Chinese electric vehicles from late October this year. The tariff rates vary by manufacturer: BYD at 17%, Geely at 18.8%, state-owned SAIC at 35.3%. Volkswagen and BMW cars manufactured in China will be subject to a 20.7% tariff. Tesla vehicles produced in China will face a 7.8% tariff.
Meanwhile, negotiations between the EU and China will continue. China is attempting to increase electric vehicle prices in exchange for the EU lifting tariffs.
On November 22, Bernd Lange, Chair of the European Parliament’s Trade Committee, informed German broadcasters that Brussels and Beijing are close to reaching a solution on the issue of import tariffs on Chinese electric vehicles. He stated, “China can commit to selling electric vehicles to the EU at a price above a certain threshold,” which would mitigate the competitive distortion caused by unfair subsidies and was the original reason for introducing tariffs.
However, the incident where BYD pressured suppliers to lower prices raises doubts about Chinese electric vehicle companies abandoning their low-price strategies.
In response to BYD’s request for price reductions, a supplier stated in a letter, “BYD, while expanding its international market with an extreme cost reduction and low-price strategy, has already planted the risk of developed countries raising tariffs and complete boycotts.”
The letter further mentioned, “This short-sighted behavior not only destroys itself but also drags down the entire industry chain, sacrificing the long-term interests of the Chinese labor force and businesses.”