China’s top automakers are falling behind their sales targets, suggesting the price war that embroiled the world’s biggest car market in the first half of the year will persist as manufacturers race to meet their goals.
(Bloomberg) — China’s top automakers are falling behind their sales targets, suggesting the price war that embroiled the world’s biggest car market in the first half of the year will persist as manufacturers race to meet their goals.
Of 10 major manufacturers studied by Bloomberg, none had reached 50% of their annual sales goals at the mid-point of the year. Li Auto Inc. was best placed, but only hit 46% of its target by the end of June. Top-selling brand BYD Co. got to 42% after more than doubling its 2023 objective to 3 million vehicles.
Most were lagging a year ago too, but that was after Covid had caused turmoil in key hubs like Shanghai, where not a single new car was sold in in April. This time, the shortfalls are happening despite automakers offering deep discounts. In fact, the cuts are partly responsible for the missed targets, because they’ve encouraged consumers to hold off purchases in anticipation of better bargains.
“Price cuts ironically didn’t lift sales too much in the first half,” Stephen Dyer, Shanghai-based managing director at consultancy AlixPartners, told Bloomberg News. “The willingness to spend later in the year could be hit by a slowing economy.”
While China has now moved beyond pandemic restrictions, the world’s second-largest economy is struggling to pull itself together again. Consumption has slowed, youth unemployment is stuck above 20% and deflation risks linger.
It’s not all doom and gloom. China is an enormous market and sales of leading automakers are rising, along with their share prices. Overall car sales in the first half of 2023 increased 2.7% from a year earlier to 9.52 million units, more than the US, Australia and Brazil combined. Still, the growth is far below the nearly 30% expansion recorded in the same period of 2021.
Seven of the 10 manufacturers showed worse progress toward their goals than in the first half of last year. Li Auto Inc., Great Wall Motor Co. and Zhejiang Geely Holding Group Co. were the only three ahead of their previous pace. While BYD lifted its 2023 target, five maintained or lowered theirs from 2022.
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The price war, which was instigated by Tesla Inc. and led to cuts of more than 20% by some brands, appeared to be petering out, especially when a group of automakers including Elon Musk’s company signed a pledge to avoid abnormal pricing. The wording of the agreement, however, was retracted two days later.
Shortly after that, General Motors Co. this month lopped 60,000 yuan ($8,350) off its Cadillac Lyriq. Some dealers for brands such as Geely and Nissan Motor Co. are offering discounts of 3,000 yuan to 45,000 yuan. Manufacturers of internal combustion engine cars have rolled out some of the deepest discounts to get rid of stock as Chinese drivers turn to greener options.
Once the price cuts look like they’ve hit the bottom, consumers may go ahead and make their intended purchases. But it’s still not clear where that level is.
“If consumer sentiment continues to erode, it is possible that pent up demand may yet be unfulfilled in the second half of the year,” said Dyer from AlixPartners, which forecasts China’s auto retail sales will grow 3% this year.
–With assistance from Chunying Zhang and Danny Lee.
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