China’s domestic electric car industry is starting to look like a re-run of the property sector’s disaster that has weighed down its economy for more than four years.
Over the weekend, BYD, the world’s biggest EV maker, slashed the prices of its cars, with discounts ranging from 10 to 34 per cent. Other major Chinese manufacturers quickly followed suit.
There are two major reasons for the latest flare-up in what have been periodic eruptions of heavy discounting in China’s EV market.
One is that the industry produces too many cars and the other is that Chinese consumers just aren’t buying enough of them, exacerbated by the weakness of consumption because of the hit consumer confidence has taken amid the implosion of the property sector.
The first issue is being gradually resolved, although it’s a long way from a conclusion. Five years ago, there were around 500 Chinese EV manufacturers. Today, there are about 60. With only three of them – BYD, Li Auto and Seres – profitable, that’s obviously still too many for a sustainable industry.
The second, the relative weakness of demand, is challenging, given that Beijing’s incentives for car trade-ins and mandates for institutions and ministries to buy EVs have had only modest impact.
With Xi Jinping strongly resistant to measures to stimulate consumption and the trade war with America clouding the economy’s outlook, China’s economy and household consumption will, without extraordinary measures, continue to wane and limit the growth rate of EV sales.
BYD’s attempt to stimulate demand came after its sales have been running at half the very ambitious targets it set itself for this year. It was targeting a 30 per cent increase in sales, but they are tracking at half that growth rate.
BYD had hoped that offering its new “God’s Eye” autonomous driving system as a standard feature would drive a big surge in sales, but that hasn’t eventuated.
With most of the other major Chinese electric carmakers also budgeting for significant growth, there is significant oversupply and a massive increase in dealers’ inventories. As of last month, there were about 3.5 million cars – nearly two months’ supply – in unsold stocks, the most in two and a half years.
Dealers are going broke, along with suppliers to the sector who are being squeezed by carmakers that are themselves under extreme pressure.
It’s little wonder, then, that the chairman of Great Wall Motor, We Jianjun, said last week the Chinese vehicle industry was experiencing its own “Evergrande.”
China Evergrande, the world’s most indebted property developer, formally collapsed last year, but was in crisis from the moment Xi introduced the “three red lines” restrictions on developers’ debt levels in August 2020....
...Governments are looking nervously at the oversupply within China, fearing it will be dumped into their markets and wipe out their own auto industries.
The US, with 100 per cent tariffs on China’s EVs, is effectively closed to the Chinese exports. Europe was open and, with its commitment to phasing out internal combustion vehicles, attractive – until the deluge of Chinese electric cars proved too much for the European Union, which slapped tariffs of up to 35 per cent on imports from China, citing the over-capacity and government subsidies...
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The Chinese EV makers’ potential in Europe might be slightly blunted by the EU’s decision to relax its planned tightening of emissions standards as part of its longer-term plan to phase out internal combustion engines...
Meanwhile, in some Asian markets stocks of unsold EVs are piling up as demand has already been overwhelmed by supply.
Well ...One day we will see Mountains of EV Shit Boxes as well ... 
...Watch this space !!
