Has the car price war started to cool down? | Jianzhi Research

In May of this year, after more than a year of continuous promotions and discounts on automobiles, especially new energy vehicles, there was a rare decrease in the discount intensity, not continuing the trend of expanding discounts from the previous four months.

However, automobile sales and inventory did not cool down as a result. Is the price war coming to an end?

In May of this year, the overall sales volume of passenger vehicles showed a significant month-on-month growth. The overall production of passenger vehicles was 1.997 million units, a year-on-year increase of 0.3% and a month-on-month increase of 0.9%; the retail sales volume of passenger vehicles was 1.71 million units, a slight year-on-year decrease of 1.9%, but a significant month-on-month increase of 11.4%.

Despite the discount intensity of new energy vehicles experiencing a slight pullback, sales still showed a year-on-year and month-on-month growth trend, with a penetration rate close to 50%.

In May, the production of new energy vehicles reached 881,000 units, a year-on-year increase of 31% and a month-on-month increase of 9.9%; sales were 804,000 units, a year-on-year increase of 38.5% and a month-on-month increase of 18.7%. The market penetration rate of new energy vehicles remained high at 47%, a year-on-year increase of 14 percentage points.

1. In May, the discount intensity of automobiles saw its first pullback, temporarily ending the price war

Since January last year, domestic new energy vehicle companies have been caught in an escalating price war, with the number of promotional models and discount intensity constantly reaching new highs.

The monthly comprehensive promotion rate of new energy passenger vehicles soared from 2.4% at the beginning of last year to 12.8% in April this year, and the number of promotional models increased from dozens to nearly a hundred.

However, despite significant price cuts by terminal companies, automobile sales and overall inventory levels did not continue to improve, and the weakening effect of price reductions on transaction conversion became apparent. Therefore, the intensity of price cuts by new energy vehicle companies began to pull back.

In May of this year, the comprehensive promotion rate of new energy passenger vehicles saw its first pullback to 9.7%, a month-on-month decrease of 3.1 percentage points, with the year-on-year growth rate dropping from nearly 10 percentage points to 3.5 percentage points.

The number of discounted models also decreased by 9 year-on-year and by 44 month-on-month to 10, returning to the level at the beginning of last year. This indicates a temporary end to the price reduction trend for new energy vehicles.

Huawei Finance·Research believes that the main reason is that the price war has touched the cost line. In addition, there were no major star companies leading the price cuts in May, nor new players entering to drive the price reduction follow-up effect. Referring to previous cases like Tesla, BYD, Xiaomi Auto, and Aito, they all triggered price reduction follow-up effects.

Despite the pullback in discount intensity, the pressure on automobile inventory did not increase synchronously. In May, the inventory warning index for Chinese automobile dealers was 58.2%, a month-on-month decrease of 1.2 percentage points.

Huawei Finance·Research believes that the main reason is the boost in consumption driven by new car releases at auto shows and the "Promotion Plan for Consumer Goods to Replace Old with New," which was particularly evident in the significant increase in car orders around the May Day holiday In addition, the weakening of price reductions by new energy vehicle companies has also led many hesitant consumers to make a purchase.

Entering June, automobile order volumes have successfully converted into sales. With the new energy vehicle promotion activities (99 models selected this year) and the collective listing of popular new models such as XPeng Mona, Aito M7 Ultra, and Changan Shenlan G318 in June, it is expected that the subsequent will further stimulate the enthusiasm of the automobile market.

2. Discrepancies in the completion rate of annual sales targets of major car companies

In May of this year, most major new energy vehicle companies basically set new sales records for the year, but the overall month-on-month growth rate is not significant. The new energy vehicle companies with the highest month-on-month sales growth are still those that offered significant promotional efforts around April.

Specifically, GAC Aion, Li Auto, and Nio took the top three spots in month-on-month sales growth, with growth rates of 43%, 36%, and 32% respectively.

Among them, Li Auto significantly reduced prices across the board in mid-April (L models reduced by 14,000-20,000 yuan, MEGA reduced by 30,000 yuan) and launched the low-priced model L6. GAC Aion reduced prices by 10,000 yuan for all models of AION Y Plus, AION S MAX, and AION V Plus in late April, while Nio's new battery rental plan indirectly reduced prices by 70,000 yuan in a promotional activity that will end in late May.

This year, major new energy vehicle companies set their full-year sales targets for 2024. Now that more than half of the year has passed, the completion status of major car companies varies. Currently, the top new energy vehicle companies have no major issues with target completion, but the performance of new forces in car manufacturing is unsatisfactory.

Although the first half of the year has traditionally been a slow season for the auto market, with sales far below the second half of the year, the sales proportion in the first five months should be at least 30% or more. Taking the example of leading car company BYD, with a full-year sales target of 3 million vehicles. As of May this year, BYD's completion rate has reached 35.28%.

Even if BYD's monthly sales volume remains at the level of May (332,000 vehicles) in the upcoming peak season, it is enough to surpass the 3.6 million vehicle sales mark. Moreover, BYD's monthly sales volume has been maintaining a month-on-month growth trend.

The full-year sales targets of new forces in car manufacturing are mostly concentrated between 200,000 and 300,000 vehicles, with overall completion rates not high, all below 30%. Only Li Auto, Nio, and Leapmotor are barely close to the passing line, while some severely underperforming companies such as XPeng and NIO have completion rates that have not even reached 15%, far from the target level However, the new forces in the car-making industry have some "big killers" to use in the second half of the year. For example, XPeng has a new brand called Mona targeting corporate customers with stable orders, while Nio has its second brand, LeDao, targeting the mass market. These are mainly aimed at increasing sales volume and are expected to help the new car-making forces achieve their sales targets.

In summary, in the sales target competition in the first half of this year, the completion rate of leading car companies is quite impressive, while the new car-making forces are slightly behind and need to rely on a strong push in the second half of the year to achieve their annual sales targets