Chinese electric vehicle (EV) makers have shifted into a higher gear when it comes to launching new models, as they strive to stay ahead of the competition amid fast-changing consumer tastes.
However, high development costs and a brutal price war are making it difficult for most of them to achieve profitability.
More than 50 new pure electric and plug-in hybrid models are expected to hit the mainland China market in 2024, according to Suolei, an advisory firm in Shanghai. Only a handful will generate enough sales to offset their development costs.
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"The carmakers need to ask themselves a hard question: whether it is worth investing billions of yuan to develop a new car that cannot generate handsome sales unless a heavy discount is offered," said Eric Han, a senior manager at Suolei, an advisory firm in Shanghai. "After all, the market already abounds with similar products, some of which will be edged out amid fierce competition."
In the world's largest automotive and EV market, new models that feature advanced autonomous driving systems and longer driving ranges can draw thousands of orders within days of presale launches, buoyed by young consumers' increasing interest in environmentally friendly cars over the past two years.
"New models used to give a boost to a carmaker's sales, but more importantly, it is the price cuts that prove to be attractive to buyers," said David Zhang, general-secretary of the International Intelligent Vehicle Engineering Association. "Lower prices add pressure to the companies, as most of them need to cut losses to survive the cutthroat market."
Major players from BYD - the world's largest electric car assembler - to start-up Hozon New Energy Automobile recently unveiled new or refreshed models to expand their customer bases amid a surge in adoption, which has seen EV sales exceed 50 per cent of total car sales each month since July.
Smartphone vendor Xiaomi's SU7 is one of the biggest hits, with 27,307 units sold to mainland customers in the second quarter. The company began delivery of the model on April 3. It starts at 215,900 yuan (US$30,420).
Still, Xiaomi said last month that its EV unit would take time to generate a profit because of massive costs for research and development (R&D), as well as marketing.
In April, Citigroup estimated in a report the nation's third-largest -smartphone maker could post a net loss of 4.1 billion yuan for its EV unit, based on a projected volume of 60,000 units in 2024. That -translates into a loss of 68,000 yuan per car.
Xiaomi said in its earnings report on Wednesday that it is aiming for full-year deliveries of 120,000 EVs.
Early this month, BYD unveiled a series of refreshed models under its Han brand, which are priced at least 2.4 per cent lower than the models they replace.
"We expect BYD to remain agile with pricing as we enter peak season," Morgan Stanley said in a research note last Monday.
BYD will maintain near-term order momentum thanks to a replacement subsidy it offers of up to 8,000 yuan per car, as well as its zero-down-payment and zero-interest loans, the US bank added.
The company, backed by Warren Buffett's Berkshire Hathaway, said in its interim earnings report in late August that its R&D costs jumped 41.6 per cent from a year ago to 20.2 billion yuan, which outpaced its year-on-year revenue growth of 15.8 per cent in the first six months of 2024.
BYD's R&D spending also exceeded its first-half net income of 13.6 billion yuan by 48.5 per cent.
The company's gross margin in the three months ending June stood at 18.7 per cent, down 3.2 percentage points from the preceding quarter.
"BYD, as a bellwether EV maker, achieved sales and delivery increases at the expense of its profitability," said Ivan Li, a fund manager at Loyal Wealth Management in Shanghai. "Its domestic rivals will not be able to enhance their gross margins via new model launches given the high R&D costs."
Xpeng's Mona M03 fully-electric sedan, another top winner among the new EV models, received more than 30,000 orders within 24 hours of its official debut on August 27. It is the first model under the Guangzhou-based carmaker's new budget brand.
Xpeng reported a net loss of 1.28 billion yuan for the second quarter of 2024, narrowing 6.6 per cent from a 1.37 billion yuan loss in the previous three months.
Phate Zhang, founder of Shanghai-based electric-car data provider CnEVPost, said most of the 20 or so new EV models launched so far this year reported lacklustre sales, because consumers are more confident that companies like BYD and Xiaomi can deliver sophisticated technology and high performance.
At present, only BYD and Beijing-based Li Auto, Tesla's nearest rival in the country's premium EV segment, have made profits selling EVs, leaving about 50 other Chinese EV builders on the wrong side of the bottom line.
In April, Goldman Sachs estimated in a research report that the profitability of the entire Chinese EV industry could turn negative this year if BYD were to slice another 7 per cent, or 10,300 yuan, off the price of its cars.
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright ? 2024 South China Morning Post Publishers Ltd. All rights reserved.
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