In China over the past year, the average sale price of cars decreased by 13.4%, yet the average profit margin for automakers increased to 7.8% in 2023, up from 6.3% the prior year.
According to a report by consultancy Alixpartners, only 19 out of 137 electric vehicle (EV) brands in China are expected to be profitable by the end of this decade. The remaining brands may have to exit the industry, merge, or compete for a smaller portion of the market. This situation is intensified by a price war, now in its second year, which has diminished margins for some Chinese EV manufacturers. As major companies like BYD Co. and Tesla Inc. continue to reinforce their market dominance, the competition may intensify. During a Wednesday briefing, Stephen Dyer, the Shanghai-based managing director at Alixpartners, noted that as long as major companies like BYD continue to maintain a gross margin, there is potential for further price competition.
Amidst these market dynamics, the average sale price of cars in China dropped by 13.4% over the past year, while automakers saw their margins increase to 7.8% in 2023 from 6.3% the previous year. Manufacturers have managed to cut costs by pressing suppliers and quickly launching new models. By 2030, Chinese automakers are expected to hold 33% of the global auto market and 45% of new-energy vehicle sales. However, Alixpartners adjusted its forecast for China’s share of the European auto market downward to 12% from an initial 15% due to the European Union’s new provisional tariffs.
Alixpartners highlighted several strategies that have given Chinese automakers a competitive edge:
- Embracing risk and speed by meeting basic safety and regulatory standards initially and then making improvements, many of which are software updates post-delivery.
- Separating the development of hardware from software, establishing independent new energy vehicle (NEV) brands, and securing both financing and local government backing.
- Investing at a national level in battery and material technologies, involving suppliers early in the process, and benefiting from vertical integration where possible.
- Enhancing efficiency through organizational structures and an intense working culture allows for up to 140 hours of overtime per month, compared to the 20-hour maximum at traditional automakers.
