China urges BYD, EV rivals to end price war and avoid cost undercutting

Business Standard

a day ago

Chinese officials summoned the heads of major electric vehicle makers, including BYD Co., to Beijing earlier this week to address concerns about the long-running price war, according to people familiar with the matter.
The meeting was hosted by the Ministry of Industry and Information Technology, the market regulator and the top economic planning agency, said the people, who asked not to be identified discussing private information. The gathering was attended by senior executives from more than a dozen manufacturers that also included Zhejiang Geely Holding Group Co. and Xiaomi Corp., the people said.
Officials told EV makers to 'self-regulate,' and that they shouldn't sell cars below cost or offer unreasonable price cuts. They also addressed issues such as 'zero-mileage' cars and mounting bills owed to suppliers that are squeezing cash flow along the supply chain and acting as quasi-debt financing for automakers, the people said.
It's rare for China's market, industry, and economic regulators to jointly host a meeting with the car industry on operational matters like pricing. The move shows how much scrutiny the nation's top leadership is paying to the sector, amid concerns the price war is becoming unsustainable and could send weaker companies into bankruptcy. However, the gathering didn't result in a mandatory directive and it's not clear what consequences manufacturers would face if they don't follow the verbal warnings, the people said.
BYD and Xiaomi didn't respond to requests for comments. A representative from Geely referred to a recent speech by Chairman Li Shufu who said the company resolutely rejects price wars and will compete on technology and its values.
The Ministry of Industry and Information Technology, the State Administration for Market Regulation and the National Development & Reform Commission didn't reply to faxed questions. The Ministry of Commerce said during a routine briefing on Thursday that it will work with other departments to strengthen guidance for the auto industry, ensure fair competition and promote healthy development.
Chinese automaker stocks were down across the board on Friday. Shares of BYD slipped by as much as 2.7 per cent while Xiaomi decreased 2.4 per cent. Geely Automobile Holdings Ltd. in Hong Kong fell 1.7 per cent.
The warnings come after BYD kicked off the latest round in the price war late last month with discounts of as much as 34 per cent, leading to criticism from industry bodies and state media.
Without naming BYD, the China Automobile Manufacturers Association released a statement saying the move by a certain company started a new round of 'price war panic' that was plunging the sector into a 'vicious cycle' and threatening supply chain security. 'Disorderly price wars intensify vicious competition, further compressing corporate profit margins,' the association said.
Media outlets directly controlled by the Communist Party leadership including Xinhua, the People's Daily and state broadcaster CCTV have all published reports in recent days that called for automakers to stop discounting and restore order to the industry. Otherwise, this could lead to low-priced and low-quality products that will damage the international reputation and the image of 'Made-in-China,' the People's Daily said.
This week's meeting marked the second time in recent days that industry leaders have been rebuked over 'zero-mileage' cars — a practice in which automakers that have failed to meet their sales targets offload new vehicles to supply chain financing companies or used car dealers.
These essentially new cars then appear on the resale market with no mileage, while manufacturers record them as sales despite them not having reaching the end-consumer. The Ministry of Commerce also met with at least two major carmakers and online used cars platforms last week on the issue.
Carmakers have been trying to pass on the hit from the price war to suppliers, demanding lower prices for parts and delaying bill payment by months. A price cut demand by BYD to one of its suppliers late last year attracted media coverage and scrutiny of how the EV behemoth may be using supply chain financing to mask its ballooning debt. A report by accounting consultancy GMT Research puts BYD's true net debt at closer to 323 billion yuan ($45 billion), compared with the 27.7 billion yuan officially on its books as of the end of June 2024, through delaying its payments to suppliers and other related financing. (Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)