The era of cheap Chinese cars is about to end: Türkiye will also be affected

Chinese authorities summoned chief executives of major electric vehicle (EV) makers, including BYD Co., to Beijing earlier this week to voice concerns about the long-running price war. The meeting was hosted by the Ministry of Industry and Information Technology, the market regulator and the country’s top economic planning body, people familiar with the matter said.

The meeting was attended by senior executives from more than a dozen manufacturers, including Zhejiang Geely Holding Group Co. and Xiaomi Corp.

WARNING: DO NOT MAKE UNREASONABLE DISCOUNTS

Authorities have called on EV manufacturers to “self-regulate”, saying that vehicles should not be sold below cost and that unreasonable price reductions should not be made. Issues such as “zero-mile” vehicles and the disruption of cash flow in the supply chain due to increased payments to suppliers have also been brought to the agenda. These practices act as a kind of secret debt financing for car manufacturers.

It is rare for China’s market, industry and economic regulators to hold a joint meeting on operational issues such as pricing. The move shows how closely Chinese leaders are looking at the sector, as the ongoing price war has reached a point where it could drive weak companies into bankruptcy. However, no compelling decisions were made at the meeting, and the sanctions that manufacturers will face if they do not comply with verbal warnings were not clarified.

BYD and Xiaomi did not respond to requests for comment. A Geely spokesman referred to a recent speech by Chairman Li Shufu in which the company strongly rejected price wars and instead emphasized that it would compete on technology and values.

The Ministry of Industry and Information Technology, the State Administration of Market Regulation and the National Development and Reform Commission did not respond to questions sent. The Ministry of Commerce said at a routine briefing on Thursday that it would work in cooperation with other institutions to guide the automotive industry, ensure fair competition and promote healthy development.

UP TO 34 PERCENT DISCOUNTS LAST MONTH

The warnings come after BYD launched a new round of price war with discounts of up to 34% at the end of last month, a move that was criticised by industry bodies and state media.

Although BYD was not mentioned by name, the China Association of Automobile Manufacturers issued a statement saying that the move by a certain company had triggered a new “price war panic” in the industry, which had plunged the industry into a “vicious cycle” and threatened supply chain security. “Irregular price wars are fueling fierce competition and further squeezing companies’ profit margins,” the statement said.

Media outlets directly affiliated with the Chinese Communist Party — Xinhua, People’s Daily and CCTV — recently published reports urging automakers not to offer discounts, the People’s Daily wrote, saying that doing so could damage the “Made-in-China” image and the country’s international reputation.

This week’s meeting marks the second time that industry executives have been warned about “zero mileage” vehicles. This practice occurs when manufacturers who fail to meet sales targets turn their vehicles over to supply chain finance companies or second-hand vehicle dealers. These vehicles appear as zero mileage on the second-hand market despite never having been used, while the manufacturer records them as sales even though they have never reached the end user.

TWO MAJOR AUTOMOBILE MANUFACTURERS AND ONLINE USED VEHICLE PLATFORMS

The Commerce Department also held a separate meeting on the issue last week with at least two major automakers and an online used-car platform.

Manufacturers are trying to pass on the effects of the price war to suppliers, demanding discounts on parts and delaying payments for months. Late last year, BYD received media attention after it asked a supplier for a price reduction. According to a report by consultancy GMT Research, BYD’s real net debt could be around 323 billion yuan ($45 billion) due to delayed payment dates to suppliers and use of supply chain financing. However, BYD only showed 27.7 billion yuan of debt on its balance sheet as of the end of June 2024.