The automotive industry in China experiences cyclical trends, often swayed by both governmental policies and consumer behaviorRecently, industry analysts have observed promising signs indicating an uptick in the domestic car market by the end of 2024. This revival is accompanied by a gradual reduction in the pressure of price wars that have characterized the sector in recent yearsHowever, this positive shift comes with its own set of challenges, as manufacturers and stakeholders gear up for what they hope will be profitable sales periods at the onset of the new lunar year.

The Chinese New Year typically sparks significant consumer interest in purchasing vehicles, as families look to invest in new cars that symbolize prosperityCar manufacturers take this opportunity to slash prices and launch aggressive promotional campaigns aimed at enticing buyersRecently, prominent players in the market like BYD, the leading electric vehicle manufacturer, have rolled out catchy phrases like "National and local subsidies are here to support your new car purchase this Spring Festival." Such marketing strategies aim to attract consumers eager to take advantage of the financial incentives available.

Despite the conclusion of earlier subsidy policies, namely the "double new" program—covering vehicle upgrades and trade-ins—regional governments have stepped in to implement transitional support measures in recent months

This has fostered an environment where demand for new vehicles is stoked, inadvertently intensifying the competition among car manufacturersIn a bid to liquidate inventory and capture larger market shares, price reductions have once again come to the forefrontEvidence of this trend is clear, as a multitude of established automakers like Tesla, Geely, Changan, and Honda have joined BYD in the fray, each looking to entice customers through heavy discounts and expansive promotions.

The resuscitation of the price war in the automotive industry exemplifies the intense competitive landscape in which these companies operateAccording to industry reports, by the end of 2024, a staggering 227 models have experienced price cuts, significantly surpassing previous yearsThe automotive sector's average reduction in vehicle prices stands at around 8.3%, making it increasingly challenging for less competitive manufacturers struggling to maintain profitability.

Among these auto manufacturers, the electric vehicle segment is embroiled in fierce price competition

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The average discount on new energy vehicles has exceeded 9%, which surpasses that of conventional vehiclesAs a result, the gaps between different vehicle categories are increasingly blurred, prompting discussions among industry experts regarding the sustainability of such aggressive strategies.

However, the ramifications of the ongoing price wars extend beyond manufacturersDealers, who have typically relied on the traditional sales model, are now confronting difficulties as price reductions eat away at their profit marginsThe practice of direct sales by manufacturers and online marketing strategies has further sidelined many traditional dealerships, some of which have succumbed to the mounting pressures brought about by this economic environmentEstablished dealership chains like Guangdong Yongao Group have faced closure, highlighting an alarming trend where over 4,000 4S stores - the quintessential automobile sales model in China - might shutter by the end of 2024.

Amidst these shifts, observers have pointed out that the systemic pressures facing the auto sector—including supplier demands for reduced costs and fierce retail competition—place both manufacturers and dealers in precarious positions

Some suppliers, particularly those catering to major automobile producers like BYD, have been pressured to lower their prices significantly, which can drive these suppliers into economically untenable situations.

Economic forecasts for the automotive industry in China paint a troubling pictureAs of late 2024, the sector has incurred substantial losses totaling over 177.6 billion yuan—a marked increase from previous yearsWith significant declines in average vehicle profits, the situation may threaten ongoing investments in research and development, stifling innovation in a field that is already rapidly evolving.

As discussions around "involution" in competitive practices intensify, policymakers are contemplating measures intended to stabilize the market and encourage healthier competitionRecent directives from governmental economic meetings propose stricter oversight on these pricing strategies, indicating a profound shift in approach