Hybrids and electric vehicles in the Chinese domestic market have already occupied more than half of the primary segment, but the high pace of expansion conceals a truth that is not the most unpleasant for those involved in the process. At the end of the second quarter, only two automakers in the Chinese market demonstrated the ability to operate without a loss – they were BYD, the leader here, and the promising startup Li Auto (Lixiang).
Image source: Zeekr
Similar statistics are provided by the South China Morning Post, which initially warns that not all manufacturers have yet reported their quarterly results, and therefore it is too early to draw final conclusions. Only three electric vehicle manufacturers have so far published official reports: XPeng, Zeekr and Leapmotor, but their combined net losses for the period reached $6 billion. This is 20% less than a year ago, but experts warn that further attempts by automakers to increase sales volumes will by reducing the cost of electric vehicles for end consumers could harm the entire industry.
BYD manages to maintain profitability in a market living in conditions of severe price wars, which they largely provoke, due to the impressive scale of production, as well as the vertical integration of the business. The fact is that BYD is also one of the world’s largest manufacturers of traction batteries, and they make up the bulk of the cost of an electric vehicle. The company is able to provide itself with relatively inexpensive traction batteries, which allows it to save on costs.
At the end of July, sales volumes of hybrids and electric vehicles increased by 36.9% year-on-year; they formed 51.1% of sales volumes in the primary automobile market of the PRC. More than 60% of all rechargeable hybrids and electric vehicles as of July were sold in China. According to Goldman Sachs estimates from April this year, if BYD cuts the prices of its electric vehicles by another 7%, it threatens losses for the entire Chinese industry, as competitors will be forced to follow. At the end of July, the Chinese authorities promised to double the size of subsidies for citizens to purchase an electric car or hybrid, but in the context of a “price war” this will not allow all Chinese automakers to break even. If the situation does not begin to change, some market participants will have to file for bankruptcy.