The ongoing “price war” in the Chinese automotive industry has sucked major car manufacturers into a dilemma of “selling more and losing more”, with profit margins continuing to decline, leading to many car companies being in a long-term state of losses.
According to the latest data released by the China Association of Automobile Manufacturers, in the first nine months of this year, the revenue of the Chinese automotive industry was 7.3593 trillion yuan, a year-on-year increase of 3%; costs were 6.4531 trillion yuan, a year-on-year increase of 3%; and profits were 336 billion yuan, a decrease of 1.2% compared to the same period last year.
Compared to the average profit margin of 6.1% for downstream industrial enterprises, the automotive industry’s profit margin of 4.6% remains relatively low. Profit margin is an important indicator for assessing the operational status of car companies.
An analysis of the profit margin trend in the automotive industry from February to September shows fluctuations, with the profit margin hovering around 5% from February to April, rising to 7.5% in May, sharply dropping to 3.8% in June, then further sliding to 3.6% in August, and hitting the lowest point of 3.4% in September.
The data from the China Association of Automobile Manufacturers indicates a continuous downward trend in the profit margin of the Chinese automotive industry from 2020 to 2023, with profit margins of 6.2%, 6.1%, 5.7%, and 5% respectively. However, in terms of sales volume, domestic automotive sales in China increased from 25.31 million vehicles in 2020 to 30.094 million vehicles in 2023.
According to the China Passenger Car Association, from January to September, China’s overall automobile sales volume reached 21.571 million vehicles, a year-on-year increase of 2.4%.
Despite record-high sales volumes, why does the profit margin continue to decline in the automotive industry? Some analysts believe that one of the reasons for the continuous decline in profit margins in the automotive industry is insufficient demand leading to a downturn in the domestic automotive market. Many car companies are competing in a limited market space, which can lead to intensified competition and trigger a “price war”.
Monitoring data from the China Automobile Distribution Association’s “Market Pulse” shows that from January to August this year, the “price war” has resulted in an overall cumulative loss of 138 billion yuan in the new car market, having a significant impact on the industry’s healthy development.
Under the shadow of the “price war”, the profit per vehicle in the automotive industry continues to diminish. Data from the China Association of Automobile Manufacturers shows that from 2017 to 2022, the profit per vehicle in the domestic automotive industry remained above 20,000 yuan, but dropped to 17,000 yuan in 2023. In the first nine months of this year, the profit per vehicle in the domestic automotive industry has fallen to 16,000 yuan, with September recording only 11,000 yuan.
In reality, Chinese electric vehicle companies are facing long-term losses as a result of the “price war”. On October 31st, electric vehicle company Beijing New Energy Vehicle Group under BAIC Group released its performance report for the first three quarters of 2024, showing a net loss of 4.491 billion yuan, a 38.14% increase in losses compared to the same period last year. Referred to as the “king of losses” by the industry, Beijing New Energy Vehicle Group has been consistently operating in a loss-making state. Over the past four and a half years, Beijing New Energy Vehicle Group has accumulated losses exceeding 25 billion yuan.
Regarding the reasons for the losses, Beijing New Energy Vehicle Group explained that the competition in the new energy vehicle market has become increasingly fierce, with the intensifying “price war” squeezing profit margins.
Apart from electric vehicle companies, performance of Chinese traditional fuel vehicle companies has also generally declined in recent years.
On October 30th, China’s largest car manufacturer, SAIC Motor Corporation, disclosed its third-quarter report, indicating that its total operating income in the first three quarters had decreased by 17.74% year-on-year and its net profit attributable to the parent had dropped by 39.45% year-on-year. SAIC Motor Corporation mentioned that the “unprecedentedly intense price war” was one of the reasons for the decline in performance.
Export, as one of the “three driving vehicles” of SAIC Motor Corporation, is currently facing challenges from the European market. Since the temporary EU anti-subsidy tariff rate took effect in July, SAIC Motor Corporation’s export sales and overseas base sales have experienced double-digit declines for three consecutive months.