Chinese EV Makers Squeeze Out Foreign Competition

• The Financial Times reported this week how Chinese car dealers were dropping foreign ICE brands in favor of local electric models.
• This is happening at the same time as European and U.S. carmaking majors face a potential flood of cheap—but high-quality—Chinese EVs in their home markets.
• Chinese carmakers were planning to launch as many as 71 new EV models this year on their home market—an already saturated market.

Chinese electric vehicles are the talk of the world—or at least that part of it that is busy trying to transition from hydrocarbons-fueled to electric transport. For the most part, that talk is worried, because after turning China into the biggest EV market in the world, local carmakers are eyeing global expansion. Now, there's one more reason to worry: Chinese EV makers are squeezing out foreign brands at home, too.

The Financial Times reported this week how Chinese car dealers were dropping foreign ICE brands in favor of local electric models. The trend has a pretty simple explanation. Chinese electric cars have been getting cheaper due to not only technological progress and China's dominance in key materials but also because of cutthroat competition. The Mercedes Benzes and Infinitis of the world, however, don't have the dubious luxury of such competition, so prices are significantly higher.

This is happening at the same time as European and U.S. carmaking majors face a potential flood of cheap—but high-quality—Chinese EVs in their home markets, too. And it seems the situation may get even hotter because competition among EV makers in the Asian nation is still intensifying.

The Wall Street Journal last month suggested in a report that the price war among Chinese electric car manufacturers was just getting started. The first shots were fired last year, as slowing sales and a flurry of new market entrants prompted everyone to get creative to move their EVs. But with a supply overhang and still lukewarm demand from consumers, the creativeness—and discounts—will continue, with not everyone surviving the end of the war. Related: Governments Deliver Blow To EV Darlings

Already some Chinese EV makers are being forced to sell their cars at a loss, according to one car analyst from the World Digital Economy Forum who spoke to the Financial Times. "Everyone is cutting prices ... amid industry-wide overcapacity," Zhang Xiang said, adding that "Enormous inventory pressure has forced dealers to sell cars at a razor-thin margin or even at a loss."

In such a price war environment, foreign ICE brands have little chance of competing successfully. Unfortunately for their makers, so do the electric brands of the global carmakers because, in addition to lowering prices, Chinese manufacturers are improving their vehicles technologically, according to the New York Times.

According to a recent report there, Chinese carmakers were planning to launch as many as 71 new EV models this year on their home market—an already saturated market. However, it seems manufacturers believe there is still space for more models as they make their new cars roomier, safer, and all-around better—plus they charge faster.

These same technologically improved cars will soon head for Europe, where they will be competing against expensive European brands that are struggling to make their EVs more affordable, and the end of these struggles is nowhere in sight. Interestingly, despite the threat, some European carmakers are wary of the EU's attempts to prevent the flood. The reason: they depend on Chinese supplies of key materials, and they manufacture some of their models there.

"You could very quickly shoot yourself in the foot," said the chief executive of BMW this week, commenting on Brussels plans to introduce tariffs on Chinese EV imports. "We don't think that our industry needs protection," Oliver Zipse told analysts after BMW's first-quarter report, noting carmakers' reliance on China along the supply chain. "You can easily endanger that advantage by introducing import tariffs."

Yet competition from dirt-cheap Chinese EVs is a problem for non-Chinese auto giants in the context of government efforts to electrify as much of the transport means in their nations as possible. It is a genuine conundrum. On the one hand, the goal is to have as many EVs as possible on roads. For this reason, EVs must be cheap so more people can afford them. On the other hand, the cheapest EVs come from China, and giving them open access to European and U.S. markets would hurt local carmakers. Something would have to give.

By Irina Slav for Oilprice.com

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