The shift towards electrification has been gaining momentum in recent years, with governments around the world setting ambitious targets for reducing emissions from traditional internal combustion engine vehicles. China, being the world's largest automobile market, has been at the forefront of this transition. However, despite the considerable growth in China's electric vehicle (EV) market, retail auto sales have not seen the same increase in demand. As a result, many major car manufacturers are turning to a new strategy in an attempt to boost sales - price cuts.
Tesla has been leading the way in China's EV market, with its more affordable Model 3 gaining widespread popularity. However, in recent months, Tesla has been facing increased competition from domestic rivals, which have been offering heavily discounted prices on their models. As a result, other car manufacturers are also turning towards price cuts to compete.
According to the Wall Street Journal, Ford and GM are following in Tesla's footsteps by offering price cuts of their own in China. These companies are hoping to clear outdated inventory and stimulate sales of their EV ranges. Even BMW and Volkswagen are getting in on the price-cutting trend by offering discounts on their EV models in China. The discounts will range from $2,200 to $7,300 per car, with Citroen-maker Dongfeng Motor Group offering a massive 40% discount on its C6 gas-powered sedan.
There are several reasons why car manufacturers are turning towards price cuts. The first and most obvious reason is to stimulate demand. Retail auto sales in China have been sluggish due to the ongoing COVID-19 pandemic, which has led to many consumers being hesitant to make big purchases. In addition, many car manufacturers are facing the challenge of transitioning their business models to prioritize EVs over traditional internal combustion engine vehicles. By offering discounts, these manufacturers are hoping to increase demand for their EV models and to also drive down the costs associated with the adoption of EVs by the public.
Another important factor driving the trend of price cuts is the need to clear outdated inventory. Car manufacturers are sitting on an estimated 500,000 vehicles collectively stored in their inventory, most of which are older vehicles that won't meet new emissions standards. By offering discounts to these vehicles, manufacturers can clear this inventory and make room for newer models that comply with emissions regulations.
Moreover, competition is fierce in China's EV market, with local manufacturers beginning to challenge traditional global brands like Ford, GM, BMW, and Volkswagen. Domestic-based market leader BYD has only cut prices by a single percentage point, but its position in China's EV market has grown considerably. So, it's not without reason that companies such as Ford and GM have begun to change gears in China and employ a strategy of "price cuts."
One example of this trend is Ford's Mustang Mach-E, which has a standard version starting at just $31,000 after a $6,000 discount was applied. These discounts come mainly from car subsidies which have been dwindling over the past year, and constant pressure from local rivals in China. The discounts at Volkswagen do not fall too far behind, either, offering thousands of dollars of savings across the range of 20 gas-powered and electric models.
However, some analysts are skeptical about the effectiveness of these price cuts. Kelvin Lau, an analyst at Daiwa Capital Markets, has warned that there is no guarantee the discounts will lead to increased sales, as Chinese consumers have become increasingly price sensitive in recent months. David Zhang, a Shanghai-based independent automobile analyst, also cautioned that if the trend of low sales continues for auto manufacturers, this could lead to the collapse of their production and dealership networks.
The EV market in China is seeing increased competition and pressure. Car manufacturers have been forced to adopt new strategies to boost sales and compete in this fiercely contested market. Among those strategies are price cuts, which have become increasingly common among automakers to boost sales and clear outdated inventory. Whether or not these actions will be enough to please buyers and boost the companies' sales targets is yet to be seen.
By Michael Kern for Oilprice.com
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