In the first half of 2024, the main theme in China's new energy vehicle (NEV) market was price cuts. Following the Spring Festival, Tesla Model 3 and Model Y announced price reductions first, followed by BYD's "electric is cheaper than gasoline" slogan. Major traditional automakers like SAIC-GM Wuling, Changan, NIO, Li Auto, and XPeng, along with new energy players, joined in with official price cuts or limited-time promotions. This led to dramatic drops in prices, such as the比亚迪 Han DM-i model, which saw its price plummet from 219,800 yuan in July 2023 without any discounts to just 189,800 yuan for high-end variants by February 2024. Amidst this price war, many consumers adopted a wait-and-see attitude, wondering if further reductions were on the horizon.

But analysts argue that the industry-wide price war may not be sustainable.

According to the China Association of Automobile Manufacturers, between January and May 2024, 136 new energy vehicle (NEV) models saw price cuts, approaching the full-year total of 139 in 2023, indicating a more intense price war during the first half of 2024 compared to the same period last year. However, unlike the widespread price reductions throughout 2023, there was a significant surge in discounted models to 29, 49, and 54 in February, March, and April, respectively. The figure then dropped sharply to just 10 in May, suggesting that the price battle may have temporarily subsided for now.

In its report released on June 24, Citigroup also noted that it expects the price war in China's new energy vehicle (NEV) market to ease from the second half of the year, with battles primarily occurring among a few major players rather than across the entire industry.

The main reason for the moderation of price competition

• Cost reduction potential limited：In 2023, new energy vehicle (NEV) manufacturers could still mitigate the impact of price wars by innovating battery technology and lowering raw material costs, particularly for batteries. However, given that battery technology has reached a certain maturity, and costs have already declined significantly, Citibank predicts that the synergistic effect of using cost reductions in key components like batteries (primarily) to lower prices in a price war may wane by mid-2024. As product prices decrease, only increased production can drive profit growth for companies. Therefore, only those with substantial manufacturing capacity will be able to sustain price competition in the future.

  

• Incremental Transformation：According to Thinkercar data, in the first four months of 2024, domestic new energy vehicle sales grew by 42% year-on-year to 2.42 million units. Among them, plug-in hybrid (PHEV) and extended-range electric vehicles (EREVs), totalling 1 million units, saw a surge of 82%, significantly outpacing the 22% growth of pure electric vehicles (PEVs) at 1.42 million units. Citibank forecasts that the short-term boost to the new energy vehicle market will primarily come from PHEVs and EREVs, with growth concentrated among a few domestic Chinese brands. For instance, BAIC, Geely, General Motors, Changan, and GAC together account for approximately 90% of the PHEV market share, while Li Auto, SERES, and Changan dominate more than 90% of the EREV market. Given the promising prospects for PHEVs and EREVs, future increases in China's new energy vehicle penetration rate will primarily benefit these companies in terms of both sales volume and profit margins. The incremental growth in the new energy vehicle market being driven by PHEVs and EREVs implies that only a select few winners will be able to engage in price competition on this trajectory.

• Export benefits are becoming more selective: Given the impact of global logistics constraints on China's new energy vehicle (NEV) exports, resulting in extended payment cycles, and the preference for smaller vehicles in overseas markets, Citibank forecasts that the growth红利 will primarily favor large automakers with product advantages and financial strength in the small vehicle segment. According to data from the China Association of Automobile Manufacturers (CPCA), the top seven players – SAIC Motor, Chery, BYD, Geely,Great Wall Motors,Changan Automobile, and Dongfeng Motor – account for approximately 80% of the country's NEV export market share. Simultaneously, facing the challenge of domestic NEV dominance, the European Union officially announced a temporary tariff hike of up to 38.1% on Chinese electric vehicles effective from July 4th. Adding to this, the US raised its import tariffs on electric vehicles from China to 100% starting August 1st, posing a severe challenge to NEV exports due to shrinking market access.