China’s New Energy Vehicle (NEV) industry – from raw materials to batteries and now sales – has hit turbulence, rocking players large and small.
March has seen not only a slide in sales growth and price cutting for all types of NEVs (Battery and plug-ins/hybrids), especially after Tesla’s aggressive moves in January, but also a slide in the price of both lithium hydroxide and lithium carbonate.
At the same time, more and more Chinese cities have started their own purchase subsidy schemes to replace the country-wide schemes that ended on December 31 – most notably Shanghai earlier this month and this week, Beijing.
And most worrying has been the surprise news that BYD, China and the world’s biggest NEV maker, has put two of its major Chinese car plants on short time because of slowing sales and building inventories.
The price cutting and inventory build-up has seen the main industry association – CAAM (or the Chinese Association of Automobile Manufacturers) issue a call for a return to ‘rationality.’
The Association used its social media pages on Thursday to suggest, “The current round of auto promotions should be treated rationally and the market should return to normal order as soon as possible.”
The association said that price wars are not a long-term solution and the auto market should return to normal order as soon as possible.
“Price wars don’t last, and value for money is the eternal law of business,” according to translations of the Association’s social media post.
“Automakers should look at the long term and make more efforts in product technology, quality, service and brand power. Local governments should take the right approach in the process of stabilizing growth and promoting consumption,” the article said.
“The government, enterprises and the media should look at this rationally and work together to maintain market order,” the CAAM said.
That seems like an invitation for the government to step in and start belting some heads, as it has done in iron ore, coal (thermal coal especially), copper, nickel and other commodities where there has been intense price competition in recent years.
Some smaller NEV makers have introduced three-month price guarantees for prospective buyers to try and convince then to purchase without fear of having the value of the new vehicle undermined by price cuts.
The price war must be having an impact because BYD this week reportedly asked some workers at its Xi’an plant, its largest manufacturing hub, to work only four days a week, with the plant running two eight-hour shifts a day.
BYD also reduced shifts at its Shenzhen plant, which makes the Han sedan, from three shifts a day to two shifts a day, according to the report.
Chinese media reports said it was not possible to say how long BYD’s shift reductions will last and whether its other three assembly plants in China are being affected by the change in production schedules.
BYD did not give a reason for the reduction in shifts in the memo, a Reuters report said.
One of the people said BYD is scaling back production in the face of weak industry-wide demand in China since the beginning of the year, according to the report.
That’s despite buoyant sales figures for February and January (after the late surge in 2022 as the purchases subsidies ended).
BYD sold 193,655 units in February, up 28% from 151,341 in January (when the Lunar New Year holiday interrupted sales which were lower anyway because of the late rush in December).
Tesla’s sharp price cuts in China in early January, saw a gradual spread of cuts by local NEV makers with internal combustion engine car makers jointing in.
Chinese car industry websites say BYD started discounting prices on two key models on March 9 because of rising stocks of unsold vehicles.
The weakening sales data (from weekly insurance and registration figures) saw Beijing join Shanghai this week in re-introducing a large purchase subsidy for NEVS.
In addition to Beijing, Xi’an, a city in northwest China’s Shaanxi province, also released its NEV subsidy plan this week.
Prior to Beijing and Xi’an, many other cities, including Shanghai and Hefei in Anhui province, released similar policies earlier this year.
Shanghai and Beijing are the largest markets in China for NEVs with a total population between the two of more than 48 million. Xi’an and Hefei have more than 21 million between them, so the moves to introduce subsidies are being taken by local governments in major markets for cars.
Between March 21 and April 30, consumers who buy a NEV produced by a local carmaker in Xi’an will receive a purchase subsidy and Xi’an consumers who install their own charging facilities by December 31 this year will also receive a subsidy.
It can’t be any co-incidence that Xi’an is BYD’s major car making hub and the move by the local government to boost NEV sales is aimed at helping the company.
If this trend spreads, it won’t be long before the purchase subsidies are reintroduced nationally again – especially seeing the government continues to make a big song and dance about this being a year in which consumption is encouraged (because retail sales remain weak and people are reluctant to spend after the tight Covid lockdowns of 2021 and 2022).
Chinese governments have started handing out food purchase subsidies in some cities and towns to encourage consumption.
But while consumer demand is weakening, raw materials- especially prices of key battery materials like lithium carbonate and hydroxide are weaker.
The price of lithium carbonate has dropped by half from when they peaked last November.
Battery-grade lithium carbonate prices in China fell RMB 12,500 per ton ($1,818 per tonne) today, bringing the average price down to RMB 300,000 a tonne (or around $US43,600 a tonne), according to MySteel
Industrial-grade lithium carbonate also fell by RMB to the average price at RMB 260,000 a tonne (around $US37,800 a tonne)
The price of battery-grade lithium carbonate has fallen 49% percent from RMB 590,000 a tonne on November 21 last year, with the drop so far this year around 40%.
China’s biggest battery maker CATL has been trying to talk smaller NEV makers (not BYD) into coming to some sort of exclusive deal for batteries at a price of around 200,000 RMB per tonne of lithium carbonate.
CATL has confirmed the stories but made no mention of prices and smaller car companies like NIO say no deal has been struck.
But Chinese websites say the stories are helping delay demand from smaller NEV makers and impacting lithium prices.
