Li Delin: Who will be killed in the car price war?

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Opinion Leader | Li Delin

"In history, no one can change the situation through their own continuous price subsidies." Zhang Yong, chairman of Alibaba's board of directors, sat down to watch JD's 10 billion hand to hand combat with Pinduoduo. Now they don't want to defeat Pinduoduo by Pinduoduo. can dongfeng motor Don't believe in evil, and want to use subsidies to revive the momentum. Unexpectedly, butterflies in Wuhan fly to the whole country. Who will be the first to be killed?

Dongfeng Motor launched the first shot in the price war, and its 17 models of Citroen, Peugeot and Fukang brands offered customers profits of 20000 to 90000 yuan. Among them, Citroen C6, with a comprehensive subsidy of up to 90000 yuan, once made countless people excited. In the past, 4S stores with few customers had long queues from 7 a.m. to 10 p.m. In January 2023, the sales volume of C6 is only 55, and it will become an online red car on the hot list as soon as the price war starts.

On the first day of the price war, Dongfeng Motor went up the limit, and on the third trading day, the increase was only 4.03%. The fourth trading day began to decline, with the highest decline of more than 7%. From March 1 to March 13, the cumulative increase of Dongfeng Motor's share price was only 0.82%. As of March 15, the share price of Dongfeng Motor has returned to the previous price war, even hitting a new low since February. The roller coaster of stock price means that in addition to the digestion of inventory, the capital market has not given a better expectation of Dongfeng Motor's price war, or even is not optimistic.

When Dongfeng's price cutting banner was waved, FAW Group in the north immediately launched a price war for brands such as Red Flag, Jiefang, Pentium, Volkswagen and Toyota, with a maximum total subsidy of 150 million yuan. The two central enterprises in the north and south ignited a car price war, and Chang'an, Chery, SAIC and Geely all started to launch subsidized car buying activities. At the time when domestic car companies are killing the eye, luxury car brands such as Mercedes Benz, BMW, Audi and Cadillac are also unable to sit down. European brands such as Mercedes Benz, which once stood high, have reduced their prices by up to 110000 yuan this time.

Behind the price war is the terrible data of automobile sales. In January 2023, the retail sales of passenger car market will be 1.293 million, down 37.9% year on year and 40.4% month on month. In fact, whether year-on-year or month on month, including the Spring Festival, the data in January 2023 are the lowest since the 21st century. After the resumption of normal sales in February, the cumulative year-on-year decline in January and February was still 19.8%. Dongfeng Motor, which took the lead in the price war, recorded a cumulative year-on-year drop of more than 51% in passenger cars in January and February.

At the same time, the price war of traditional fuel vehicles burns to the soaring new energy vehicles. As the world's new energy vehicle sales champion BYD And began to join the price war, with a comprehensive price reduction of more than 8000 yuan. Weilai, Xiaopeng and Ideals all join the price war by means of various subsidies. Behind the participation of new energy vehicles, the national new energy subsidies will be terminated on December 31, 2022. After the rush buying before the national subsidy ebbed, the sales volume in January fell 7.3% year on year and 48.2% month on month.

According to the disclosed performance forecasts of 13 listed auto companies in 2022, except for BYD, there are 5 companies with losses. The new car making force led by Wei Lai even lost one car after another. Now, the price war has become a red eye. If the price is cut by 10% or even higher, I am afraid that more car companies will be dragged into the quagmire of loss. In the automotive industry, once the market transaction price TP collapses, it can no longer return to or approach the official sales price MSRP set by the manufacturer.

Dongfeng Motor, the flag bearer in the price war, has about 160000 employees. According to the calculation of a family of three, the whole family of Dongfeng family has nearly 500000 people. Together with the upstream and downstream industrial chain of Dongfeng Motor, the industrial ecology that can be affected is nearly 2 million people. The housing and consumption of 2 million people has greatly boosted Hubei's GDP. Dongfeng Group ranks first in both Wuhan and Hubei tax payment rankings. According to the data available in 2018, Dongfeng Group paid taxes of 55.1 billion yuan, accounting for 16.18% of Hubei Finance.

In the wave of new energy vehicles, Dongfeng Motor has made slow progress in new energy and intelligence. In January and February 2023, the total sales of new energy vehicles will be only 20000, less than a fraction of BYD. Dongfeng Group, which is in difficult transition, is facing the problem of high inventory. The semi annual report of 2022 shows that the inventory is 13.027 billion yuan, the highest value in 10 years. The price war between Dongfeng Motor and the local government aims to clear the inventory, achieve a better industrial cycle, and hope to quickly boost the local automobile industry. SAIC Group Also facing the problem of Dongfeng Group, the inventory in the third quarter of 2022 is 92.2 billion yuan, the highest value since the listing.

Now, the key is that after the price war, MSRP will become a game of drinking poison to quench thirst, and consumers will have a new position on the price of cars. State owned enterprises have capital to cut prices, and the completion of sales volume is their top priority. Private enterprises pursue profits and have no incentive to cut prices. Now they are forced to get involved. Where are their chips in the transition to new energy vehicles? When foreign investors join the price war, their global price ecology will be damaged, and their bearish view of the Chinese market may become a trend.

How does price war promote the automobile industry? Or hurt? Automobile has a long industrial chain, which drives numerous industries and employment in upstream and downstream. The price war not only reduces the profits of vehicle manufacturing enterprises, but also brings enormous pressure to the upstream and downstream industrial chains. The price war triggered by Dongfeng has inevitably reduced the profits of fuel vehicles that had some profits, even lost money. In addition to Tesla and BYD, almost all new energy vehicles are in a loss state, especially the new car making forces.

When all participants in an industry are losing money or are on the verge of losing money, what is the driving force and future of the industry? The price war launched by Dongfeng is only the fuse of the industry. The real price war starts from the price reduction of Tesla. New energy vehicles such as BYD and Weilai follow up. As the leaders of new energy vehicles, they have developed rapidly under the strong promotion of industrial policies. In order to improve the penetration rate of the market, they have squeezed out the traditional fuel vehicles in Europe and Japan through the price war.

Detroit used to be the pride of Americans, and the Motown of Detroit is even more beautiful. During the 2008 financial crisis, Detroit began to turn sharply downward, marking the rapid decline of the traditional American automobile industry. Under the siege of European and Japanese car lines led by Germany, Ford Motor, which was missed by countless American families, went bankrupt 10 years ago. Detroit has also become the largest bankrupt city government in American history. Tesla is the greatest hope of Americans.

Tesla's rise in the new energy field, especially the expansion of China's Shanghai base, has rapidly enriched and improved China's new energy vehicle industry chain, and the new energy vehicle force led by BYD has risen rapidly. It is not difficult to find that under the dual carbon strategy, with the support of various policies and the help of real gold and silver subsidies, new energy vehicles are seizing the fuel vehicle market at a rapid speed. Whether Europe or Japan's traditional fuel vehicles participate in the war, they will inevitably enter the decisive moment.

In the current price war, there are not only traditional fuel vehicles, but also new energy vehicles. The market space for fuel vehicles will become smaller and smaller. Under the pressure of huge production capacity, we have to reduce the price to save. Now, in the face of the red eye killing car market, should fuel vehicles be quickly replaced in the autumn wind sweeping away the fallen leaves? When can new energy vehicles be weaned into a self supporting health industry? Is the orderly transformation of a super industry in the painful period? Or cut through the chaos in the scuffle?

From the perspective of the dual carbon strategy and the reconstruction of the automobile industry, the current automobile price war is just the beginning of the reconstruction. New energy vehicles, led by Tesla and BYD, have begun to seize the market with fuel vehicles after long-term industrial policy support and technology precipitation. The price war is not for the price, but for the market, for industrial restructuring, and for the new voice of the industrial chain. As the price war weakens the gross profit and loses the market, the traditional automobile forces in Europe and Japan are bound to be killed in the price war.

China, which has the largest sales volume of new energy vehicles in the world, already has a complete new energy vehicle industry chain. In addition to China's strong market strategy, it has also begun to move towards overseas markets. The price war will make domestic traditional fuel vehicles suffer from transformation pains. For state-owned vehicle enterprises with strong capital strength, after the pains, they will become the real protagonists of mergers and acquisitions in the new energy vehicle market, To regain the voice of the automotive industry chain. In the face of the car price war, perhaps, ordinary people They will say that they are potatoes that have to peel off at least.

(The author of this article introduces: scale business, value based, investment oriented perspective, observation and insight into commercial civilization, scientific and technological innovation, official WeChat official account: delinshe)