More Chinese EV makers went out of business because of Tesla's price war

khodrocar - As manufacturers of traditional fossil fuel automobiles and new energy vehicles compete for a larger part of a market shaken by sluggish sales, a vicious pricing war is raging across China's auto industry and sparking a dramatic revamp of the world's largest automotive market.

Starting in January, Tesla and some other brands cut prices by 5% to 15% after sales growth stalled. The cutthroat competition has driven some automakers out of business or near collapse.

WM Motor Holdings Ltd, a Shanghai-based electric-vehicle maker backed by tech giant Baidu Inc. and founded by a former Volvo executive, is on the edge of collapse as it faces difficulties in maintaining normal operation.

According to Chinese corporation information data provider Tianyancha, a court in Shanghai recently ruled the freezing of WM Motor's stake in its Wenzhou manufacturing subsidiary worth RMB4.4 billion.

In February, local media reported that WM Motor stopped paying all its employees, and its factories in Huanggang, Hubei, and Wenzhou, Zhejiang, had halted suppliers quit delivering components when the company delayed paying their bills.

Data from the China Passenger Car Association (CPCA) showed that WM Motor sold only 457 vehicles in the first two months of 2022, down 92.4% from sales of 5996 units in the same period last year.

Founder in 2015 by former Volvo executive Shen Hui, WM Motor was regarded as one of the most promising Chinese EV startups. It sets delivery records and considers a listing on Shanghai's STAR board, China's answer to the Nasdaq. The company also planned to list through a reverse merger in Hong Kong, where sister EV manufacturer Zhejiang Leapmotor Technology Co. made a dismal debut last year. However, its listing plan has yet to materialize.

China's vehicle market is becoming more competitive; Data from Tianyancha showed that 198 registered EV manufacturers as of 2022, many of which were smaller competitors vying for government subsidies as Tesla and domestic producers like BYD Co. gained dominance, more than half shut down or ran out of money.

More famous manufacturers have been eliminated as the market matures and gets more competitive. Byton Ltd., founded by veteran executives of European manufacturers and initially supported by Tencent Holdings Ltd. and Foxconn Technology Group, halted car production early in the pandemic. The goals of Evergrande New Energy Vehicle Group Ltd. also needed to materialize.

With the most recent Tesla price reduction, the mass market rivalry has become even more fierce.

Tesla dropped the price of the Model 3 and Model Y by 6% to 13.5% in China at the beginning of January after lowering prices in October last year. Ten days later, XPeng took action by lowering EV pricing by 10%–13%; a number of other companies soon followed. Early in February, Nio slashed some prices, and towards the end of the month and again at the beginning of March, even BYD joined the price-cutting bandwagon.

Carmakers in China are under pressure due to a price war that American manufacturer Tesla Inc. started at the beginning of the year. According to data gathered by research company China Auto Market, roughly 20% of the passenger automobiles on the market experienced price reductions of more than 10,000 yuan ($1,500) in the first quarter.

According to Richard Yu, CEO of Huawei's Consumer Business Group and the executive in charge of the company's smart car business, the Chinese automotive sector will experience a wave of restructuring similar to the one that reduced the aviation manufacturing industry to a small number of companies late last year. Yu said no more than five companies would eventually dominate the Chinese auto market.

According to CPCA data, more than 80 passenger automobile manufacturers operating in China with more than 100 brands, including joint ventures with nearly ten multinationals.

Alarms have been raised by analysts on what they have dubbed survival challenges. After years of fast growth in the EV sector that brought several firms into the industry, a market slowdown and the elimination of government incentives will unavoidably burst certain bubbles.

In its recent report, global consulting firm ING predicts that China EV sales will slow in 2023 after the fiscal-driven spike over the past few years.

"This year's sales rise will be less supported by new EVs. There has been no indication that the monetary subsidies for EVs will be renewed, with the exception of the announced renewal of the car purchase tax exemption program for new energy vehicles (5% tax exemption is equivalent to roughly CNY10000). The government may not want to spend on subsidies to increase consumption at a time when the economy is rebounding due to the growing fiscal burden."