Why China Is Trying to Tame Its Electric Car Frenzy: Beijing has run out of patience with companies slashing prices, and is urging restraint. But fierce competition is also producing a surge of innovation.
Posted by EloeOmoe@reddit | cars | View on Reddit | 78 comments
[removed]
Choice_Student4910@reddit
When most of these EV companies go bankrupt, there’s going to be a huge amount of dead unserviceable EVs over there. Like Fisker but a thousand times worse.
piggybank21@reddit
This is a self-inflicted wound. Chinese government made EV a top priority in their "Made in China 2025" plan 10 years ago, of course companies chased after subsidies and cheap bank loans.
Now that the industry (through artificial means) has leapfrogged the rest of the world, the supply is exceeding demand. The only thing that can be done is to cull the supply and consolidate. United States went through this phase with ICE car companies 100 years ago. (i.e. hundreds of carmakers consolidated to a few).
The Chinese government obviously realized this too now, if they don't put in measures to decrease production capacity, then it will lead to a heavy spiral of deflationary environment (already happening) in which everybody loses.
Boys and girls, the statement "consumer benefits from heavy competition" at the macro level is only temporary, unhealthy competition (at a loss) actually kills economies, the workers eventually will all be laid off. The ones still employed will not spend any money. Deflation is much more dangerous than inflation in the long-run.
throw_me_away3478@reddit
How is this a "wound"? The Chinese government preparing for a correction in the EV market and taking appropriate measures. Currently there's no actual issue with the financial situation...
piggybank21@reddit
There are actually a lot of issues with the finances of these car companies.
Many of these companies were only economically viable under massive govt subsidies (with state-owned banks lending for building factories and massive consumer subsidies for buying EVs). They existed not because there was enough fundamental EV market demand, but because the government wanted EV as a targeted industry.
While EV has a growing consumer demand, it is nowhere close to the astronomical level of the built-out Chinese EV manufacturing capacity. Western automakers actually have to build out capacities closer to real-time demand growth because the government incentives are not nearly as large.
Think about it, EV is not just about the car itself, its growth is highly dependent on charging infrastructure and regulatory support to build out that infrastructure. Those things change at a much slower pace in the West, so EV demand growth is much slower in the West.
Even if China has "won" the EV industry and can supply the entire world, it's EV producers are still losing massive amount of money because the rest of the world's EV demand simply can't catch up to the over-built production capacity of Chinese EV producers.
See the Chinese solar industry as another example. They already achieved global dominance. But their entire industry is losing money and companies are declaring bankruptcies left and right due to over-capacity.
At a macroeconomics level, over-capacity is very BAD. It leads to a deflationary spiral for the entire economy. As company cuts prices, they also have to cut jobs, some will go bankrupt. Many still employed won't spend any money. These cyclic effects will tank the economy if you let it go on long enough.
throw_me_away3478@reddit
I think you and I have very different views on good and bad here.
Companies going out of business due to changes in a very new and volatile industry is not "BAD". China is unique due to their centrally planned government they can absorb these loses to push specific industries future.
I would be very surprised if the EV sector settling causes a large economic downturn for the rest of China. Although western media would love the opportunity to run with those headlines.
piggybank21@reddit
Your assumption is that China "can" absorb theses losses, but the reality of it is that it can't.
That's why China's consumption is stuck at 40%, versus 70% for developed Western nations. All that wasted money that went into EV, Solar, Real Estate, High Speed rail could have actually gone to Healthcare, Social Security, Education. Chinese consumers are not willing to spend to 70% of the GDP unless there are social safety nets like there are in the West. (i.e. the middle-income trap)
EV is just one industry, but this central "over-planning" is a problem across multiple industries in China. Massive amount of tax incomes went to these failed companies, the mounted heavy costs don't magically get "absorbed" into ether, the Chinese population pays for it in the end because it causes a cascading deflationary economy where job losses will mount and combined with an upcoming reverse population pyramid where retirees outnumbers the working-age population, it becomes very difficult problem to recover from.
Lutetia03@reddit
Fantastic post.
deleted_by_reddit@reddit
[removed]
AutoModerator@reddit
No rage bait, memes, trolling, copypasta, or low-quality joke posts or comments.
I am a bot, and this action was performed automatically. Please contact the moderators of this subreddit if you have any questions or concerns.
arcticavanger@reddit
Also all of the 0 mile used evs that they have now aswell
Thoth_the_5th_of_Tho@reddit
Because that ‘correction’ will wipe out a lot of that investment.
throw_me_away3478@reddit
How is it wiped out? Execs don't get compensated as much in China and otherwise the money goes to jobs and suppliers
Thoth_the_5th_of_Tho@reddit
A correction means the excess factories get closed, the workers laid off, supply contracts get terminated and what’s left is worth pennies on the dollar put into it. It means that all the recourses invested into this, by the taxpayers in large part, was based on an incorrect prediction of market demand, and you aren’t getting a return on it.
EloeOmoe@reddit (OP)
Over investment and over subsidization is a common problem in the Chinese economy. This is it at a much higher scale.
TurkeyBLTSandwich@reddit
I feel like this is fine in some industries like high speed rail and solar.
But the eventual goal of the Chinese EV market was to hit Europe and America.
Unfortunately they didn't expect AS MUCH resistance and tariffs to Chinese EVs as seen. If China can somehow hold on and tap the American market I think the EV market can be saved.
Honestly I could sort of see a partnership where Ford or GM partners with BYD or something to start making an American branded or Co branded EV.
At the very least batteries from China
Yankee831@reddit
They did that… in China.
gumol@reddit
they're doing well in Europe
1988rx7T2@reddit
How many of those vehicles made a profit though?
munche@reddit
one of the worst things about Tesla is they made it normal for car subreddits to sound like a shareholders meeting
1988rx7T2@reddit
It’s a valid question. The same thing comes up when the “Why don’t they just make another…” topic comes up. Cars need to make money eventually.
munche@reddit
except we're not talking about "why don't they make"
We're talking about cars that are being made and then adding a metric of profitability for the company to care about them
Who gives a shit? you buy a thing at it's price and judge it on the price
What's the actual worry here? the company will go under? Why is that relevant for this conversation? Explain why we should care?
The reason we should care is Tesla merged Stockholders with Fanboys and now they do the annoying fanboy shit about car companies using stockholder terminology
Most people just buy a car, we aren't invested in the company. That shit is weird and gross
1988rx7T2@reddit
There are huge economic implications if the Chinese auto industry collapses, or if it dominates due to state subsidies. Lots of people can lose their jobs.
cookingboy@reddit
All of them.
Chinese OEMs treat EU as a profit center. They are losing money domestically but foreign markets are still profitable due to the much higher price.
Schtuka@reddit
Their profit is destroying german automakers. It will take some time but the pressure is building.
1988rx7T2@reddit
So they lose money, but depending on how you look at it, they lose less money on cars sent to the EU. Got it.
cookingboy@reddit
No. They literally make money off the cars sold in Europe.
1988rx7T2@reddit
If I have a flight that makes money on 10 first class seats and loses money on economy, did I make money or lose money?
cookingboy@reddit
It is. Which is how companies like BYD is a profitable company.
A bunch of those companies are profitable. It’s nonsense to say they lose money overall.
1988rx7T2@reddit
BYD and Li auto are the only ones.
TempleSquare@reddit
The key to entering the American market is not to sell the cars directly. Become strategic partners with, say, Chrysler. Sell the EV drivetrain to them, but let Chrysler build and market the car under their brands.
woodsides@reddit
This is just their playbook tbh, nothing new. Subsidise the shit out it and get to #1, then consolidate and spread your product worldwide.
Visible_Quarter_8129@reddit
it's called "dumping"
gimpwiz@reddit
Absolutely. Selling the product below cost to drive competition to bankruptcy. This is considered anti-competitive in the US and many other countries, and they would be wise to prevent foreign companies dumping in their markets to drive local competition to quit.
probablyhrenrai@reddit
Isn't that Amazon's MO, though, with Amazon Basics?
gimpwiz@reddit
As far as I am aware, Amazon Basics are not sold below cost to drive out competition, their anti-competitive bent is essentially harvesting data from its partners and then undercutting them by cloning their product with a little too much knowledge of margins, sales, etc.
cookingboy@reddit
Except that’s the exact opposite of what the Chinese OEMs are doing.
They are engaged in a brutal price war domestically, but are selling at a healthy profit margin abroad because they can due to lack of competition.
Thats why Chinese cars are priced much higher in other countries than they are in China.
That’s pretty much the opposite of dumping
woodsides@reddit
Although that is true since many of the Chinese EV subsidies are for domestic consumption, there are also quite a few subsidies that directly help the cost of manufacturing the car go down significantly, almost to a point where traditional OEMs outside China cannot compete with them through sheer R&D and efficiency improvements. This by itself gives the Chinese OEMs an artificially lower cost of product which wouldn't be realistically be possible for global OEMs without significant governmental support.
Even after these Chinese OEMs open local assembly plants and factories to avoid local import tariffs, the level of advancement that they gained through the sheer focus of their administration, both financially and infrastructurally on the industry cannot be overstated. There have been several examples all over SEA and APAC where chinese OEMs were pricing cars that were not only pricing cars at 20-30% lower than traditional OEMs (which by itself is fine), but it was a rate at which would be realistically impossible to sell at a profit due to the local taxes in the destination country, even if you compare them with the Chinese prices.
Now, if China were to actually cut out all the subsidies that directly help in financially lowering the cost of production at the factory, it would be considered more fair than the situation we're in now. But realistically, we know that China won't cut those subsidies (atleast in reality) and the western economies won't allow China to enter en-masse.
juuceboxx@reddit
Except now the Chinese govt cares because it's their own economy and manufacturing base that'll get the brunt of the 'involution' competition instead of other economies and manufacturers taking the hit.
bigbura@reddit
Am I wrong feeling this EV thing mirrors the apartment building crisis of the past decade or two?
China seems to go 1,000% en masse on new ideas with subsidies and things always spiral out of control due to this. One would figure the leadership would understand their own people, tailoring policies and initiatives accordingly. Yet they keep making the same mistakes over and over.
Thoth_the_5th_of_Tho@reddit
It is directly downstream of it. EVs have been part of the development plan for a long time, but the huge surge in investment happened after the problems started in the real estate side of the economy, so they could still meet growth targets. So supply overshot demand. Especially since most Chinese people were heavily invested into the real estate side, far more than most other economies, and are unlikely to ever get that money back in full.
impossiblefork@reddit
But people will have cars, and China will be able to get rid of its oil dependence, solving a pressing strategic need.
EloeOmoe@reddit (OP)
You're right and someone else in this thread pointed out that the result of this was Evergrande tanking the economy in 2020.
deleted_by_reddit@reddit
[removed]
AutoModerator@reddit
Political discussion is prohibited. However, if your post involves politics AND CARS, please consider submitting to /r/CarsOffTopic.
I am a bot, and this action was performed automatically. Please contact the moderators of this subreddit if you have any questions or concerns.
Old_Wallaby_7461@reddit
It also happened in aviation after the government bucks dried up.
At one in the 1970s, the US was buying aircraft from Boeing, Northrop, Grumman, Fairchild Republic, General Dynamics, McDonnell Douglas, Martin Marietta, Ling-Temco-Vought, and Lockheed.
Now it's just Boeing, Northrop Grumman, and Lockheed Martin.
ZeePM@reddit
When the Cold War ended the US aircraft makers were forced to consolidate. The DoD actually had a dinner at the Pentagon later named ["Last Supper"](https://en.wikipedia.org/wiki/Last_Supper_(defense_industry) where they invited all the industry players and told them straight up budget cuts are coming, consolidate or perish.
Old_Wallaby_7461@reddit
I assume the Chinese equivalent will have more liquor at it
IllustriousSteam@reddit
I wonder what the “Big Three” of China will be once all these companies eventually consolidate. The USA had Ford, GM, and Chrysler. Japan has Toyota, Honda, and Nissan. Germany has Volkswagen AG, BMW, and Mercedes.
aembleton@reddit
Byd, geely, saic
turb0_encapsulator@reddit
I would say that Chinese EV funding worked exactly as planned. It spurred innovation, and now that they have essentially beat the rest of the world, they can consolidate and let the laggard firm die off.
TurboSalsa@reddit
One problem is the industry as a whole is built out too large, so even if they consolidated under a dozen brands they'd still have too much capacity and likely be losing money, and the established companies probably have no interest in acquiring money-losing zombie companies with a whole lot of debt.
The other problem is unprofitable automakers are still borrowing money from the state to build more factories when they can't even pay the bills they have now, so if the government lets them die off they might have some banks to bail out as well.
Y0tsuya@reddit
A lot of consumers can't see beyond their next purchase. PC gamers are particular bad in this regard. I've seen some people supporting corporate espionage if China can steal technology from US companies to make cheap products for their next build.
bullet50000@reddit
This is one of those economic lessons that the average person will always have a hard time understanding because it feels so good in the moment, and sounds REALLY good when you see things getting expensive.
The only time it's ever really worked is in computers when stuff got better and cheaper, yet the companies behind could still make a profit, because the base supply of the major centerpiece (the CPU and chips) behind it got cheaper. Thats not happening fast enough with EV batteries to make things work this way.
gimpwiz@reddit
Semiconductors and PCBs and displays and some adjacent pieces of tech are pretty much the only exception to the rule that I can think of, where prices actually go down over time even as the product improves (in real dollars, and often in nominal dollars too), without killing the industry.
Even then, there's some churn and thrash in both the products and the companies, as well as a lot of bankruptcy and consolidation and companies just quitting markets.
For example, look at memories. There are basically three DRAM vendors now, the others went out of business. DRAM is a commodity and a brutal business to be in. Flash memory and hard drives similarly only have a few vendors each (just like RAM, plenty of brands, but only a few factories making the actual NAND chips or spinning drives.) There are only three leading-edge digital logic silicon fabs left as well - Intel, TSMC, and Samsung. IBM and GF (spun out if AMD) quit in the past decade. Look at phone chips - fifteen ish years ago everyone was selling an ARM chip for phones, now there's just a handful of real companies left in that business outside of the super low end janky stuff, like 3/4 of them quit.
Basically we've all been enjoying Moore's Law and its benefits, and the enormously growing demand over the past 60+ years that has allowed economies of scale and investment that kept pushing price per unit down. Plus software and firmware that runs on these things being essentially write-once at high cost, but cost of selling multiple copies being essentially free.
Unfortunately stuff like batteries doesn't quite work as nicely and stuff like steel and aluminum frames not working nearly at all like this. I mean maybe if car companies were selling two hundred million identical steel frames a year we would see some real price reduction, but they're not and never will, so the economies of scale simply don't quite reach so high.
huangw15@reddit
There is no oversupply in the EV market per se. All the popular EV brands are capacity constrained, which is why you have huge order backlogs. These new EV companies are barely a decade old, a lot of them were only created around 2020, they're playing catch up in capacity.
The Chinese auto industry overall does have overcapacity problems, mostly from joint ventures / state owned automakers / and even domestic Chinese OEMs.
The price war is happening because consolidation is expected to happen. China saw a spike in the number of companies in the NEV era, I think there are over 100 companies making smart EVs. Now a mature market like the US / Europe / Japan etc have a handful of companies. It is expected it will be the same in China, just like during the joint venture ICE era. This means only a few of the companies will survive and eat the rest. But no one wants to be the one eaten. So to survive, you need volume, and to gain volume, you slash prices.
This is a self reinforcing problem because when you're talking about smart EVs, they are kinda like smartphones. You need backend OTA updates to software, smart features, autonomous driving etc. this means customers are hesitant to buy from brands that have very low volume and look like they're not gonna make it, because they're afraid they're not gonna get support for the cars they buy. This in turn pushes them to cut prices etc etc.
Lutetia03@reddit
You forgot to add the "sponsored" tag to your post.
roctac@reddit
If we could get those cheap better quality EVs in the USA.
Lutetia03@reddit
Are they though? We barely have any medium or long term reliability date for these cars.
aaffpp@reddit
The same situation occurred with US auto and aircraft manufacturing after WWII ... there was a huge reckoning and shakedown, and today cars are sill rolling and planes flying. The aircraft, at least, are economically viable, quite reliable and safe.I don't think the US auto manufacturers learned the same lessons as the Japanese did in terms of creating value and reliability to drive long term customer loyalty.
az9393@reddit
In Russia we are more exposed to Chinese cars than elsewhere due to sanctions and let me tell you Chinese cars are absolutely light years ahead of what people normally think.
Not only do they make a new version like almost every year, this new version will have added 250 horsepower, completely new interior and be even cheaper than before (this example is Zeekr 001). This compared to German manufacturers which are making the same thing for 20 years now only adding 20hp and a new screen once in a while.
Meanwhile Chinese are not only way cheaper but in some cases they are cheaper and better than their rivals. I understand how this sounds and believe me I (and all Russians who now drive Chinese) thought the same thing. Until you try it. For example Lixiang L9 is a car that’s more comfortable and better to drive than pretty much all German competition. Like a GLS600 is worse in terms of comfort than the L9. In terms of options like massages cameras etc it’s not even close. And the L9 costs something like $60k.
A lot of people in the west are sleeping on the absolute revolution that is happening with china car manufacturers. They’ve completely taken over Russia, and the same thing awaits all countries that let them sell it.
OldAdvertising5963@reddit
What innovations?
DeTomato_@reddit
Interesting. I’ve always been curious why Chinese automotive groups have so many subbrands, some of which overlap. This doesn’t sound sustainable. Speaking of BYD, they are the saner ones, only having four brands. Still, two of them, Denza and Yangwang are both in the same luxury segment.
I live in a country in Southeast Asia. In 2020 there were only two Chinese brands. Now, my local auto show feels like the Beijing Auto Show.
EloeOmoe@reddit (OP)
I as at Hangzhou last summer in the fancy shopping area and there were more EV storefronts there than there were purse and makeup brands.
snoo-boop@reddit
You can't call something a bubble until after it pops, but this is what a bubble looks like before it pops.
TrafficOnTheTwos@reddit
“Woah woah woah, you guys are Capitalism-ing way to hard”
hiro111@reddit
Chinese EVs are being sold below cost. The FBI and State Department have also warned for many years that IP theft of EV technologies is rampant in China. Also, Tesla was forced to share a lot of their IP as a cost of getting into the Chinese market. There has also been notable domestic innovation in Chinese EVs, particularly in critical battery technology. The result has been a Chinese EV industry that has developed at an unbelievably pace. There's an unreality to the situation, I don't understand how they can sell these cars at these prices. It turns out they can't. The Chinese system keeps spitting out similar bubbles: - real estate - there are tens of millions of empty apartments all over China and an equally enormous amount of empty commercial space - high speed rail - the WSJ recently reported that China is in the process of building 30K miles of HSR it doesn't need. - low end semiconductors - Chinese firms have finally stopped building new fabs after flooding the market for years with cheap low-end chips - steel and aluminum - analysis indicates that Chinese companies are currently producing 50MM tons of steel over current global demand, a number expected to grow to 250MM tons in a few years - solar panels - China is currently producing double the global demand and shows no signs of slowing
Etc
cookingboy@reddit
The cars can be sold at the price because of low cost in supply chain, components and manufacturing (Chinese factories are more advanced and more automated than German, Japanese and American factories).
We are talking about a country that puts AESA radar on their farming drones. The same tech that we use on warships and fighter jets and they use it for consumer products.
Parts and advanced components are incredibly cheap in China due to scale.
V8-Turbo-Hybrid@reddit
You could just buy new car in used car market, that’s a dream for people who unable to afford a new car. However, it’s really bad for automakers and dealerships because they can’t earn enough money.
EloeOmoe@reddit (OP)
Recent episodes of This Car Pod and TheSmokingTire both touched upon this. EV manufacturers, faced with cars that don't sell, are in a race to the bottom with lease deals and incentives which then kills the resale value of the car and potentially its reputation. Kinda like Maserati did a few years ago.....
tech01x@reddit
This is incorrect… the vehicles do sell, with marketshare over 50%. Plugins in China are selling at a 10 million unit annual run rate.
Both ICE and EVs margins are squeezed, as the price wars and the innovations with the quick product release cycles are putting massive competitive pressure across the board.
These dynamics are completely different than in the U.S.
EloeOmoe@reddit (OP)
This Car Pod and TheSmokingTire are talking about the US market.
tech01x@reddit
This story is about China.
hi_im_bored13@reddit
I don't think these are similar examples, maserati needed to move perception upmarket, but EVs if anything need to move perception downmarket
EloeOmoe@reddit (OP)
What I mean is Maserati tanking resale and brand reputation by aggressive lease deals.
mililani2@reddit
Sounds like they're worried about another Evergrande but in EV's.
EloeOmoe@reddit (OP)
Nailed it. I was thinking of that while typing this up but could not recall the specific name.
ArmoredGoat@reddit
Wheres the super-like button
AutoModerator@reddit
It looks like you're posting about a currently popular topic. Your submission has been automatically removed and forwarded to moderators for review. If your post is about Tesla or Olympian, please see this thread for details. See r/TeslaMotors and r/RealTesla for indepth discussion. Want to prognosticate about car prices? Head on over here. YES, WE WILL REVIEW YOUR POST AS SOON AS POSSIBLE. NO, YOU ARE NOT ON A BLACKLIST. You do not need to send us modmail immediately. Your call is very important to us and will be answered in the order it was received. No, seriously, we're all volunteers. We'll get to it as soon as possible. In the meantime, please check r/cars/new to see if there is a discussion already underway.
I am a bot, and this action was performed automatically. Please contact the moderators of this subreddit if you have any questions or concerns.