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CNBC
6 days ago
- Automotive
- CNBC
China's EV price war heats up — What's behind the big discounts?
BEIJING — Competition in China's electric car market just got fiercer with consequences for the domestic economy and even the global auto market. Industry giant BYD last week announced a slew of discounts — some of nearly 30% or more — across several of its lower-end battery-only and hybrid models. The budget-friendly Seagull compact car saw its price drop to 55,800 yuan ($7,750). Other major Chinese automakers have begun following suit. "BYD's action this time has made the industry rather nervous," Zhong Shi, an analyst with the China Automobile Dealers Association, said in Mandarin, translated by CNBC. "The industry is in [a state of] relatively large shock," he said, noting smaller automakers are now more worried about their ability to compete. The industry has been a rare bright spot in an economy that has been seeing slower growth and lackluster consumer demand. Part of Beijing's latest attempt to spur consumption included subsidies for new energy vehicles, a category that includes battery-only and hybrid-powered cars. "The latest car price competition underscores how supply-demand imbalance continues to fuel deflation," Morgan Stanley's Chief China Economist Robin Xing said in a report Wednesday. "There is growing rhetoric about the need for rebalancing [to more consumption], but recent developments suggest the old supply-driven model remains intact," he said. "Thus, reflation is likely to remain elusive." China's electric car market has already been in a price war for the last two years, partly fueled by Tesla. But this time, traditional automakers, including state-owned ones, are feeling significant heat as the share of new energy vehicles has come to account for about half of new passenger cars sold in China. Last week, Great Wall Motors Chairman Wei Jianjun warned of an "Evergrande" in China's auto industry that had yet to explode, comparing the fast-growing EV industry to the country's bloated real estate sector. The outspoken private sector autos executive was speaking to Chinese media outlet Sina in an interview posted on May 23. Once China's real estate giant, Evergrande defaulted on its debt in late 2021 as the property market slumped after Beijing cracked down on the company's high debt levels. Demand for homes also fell following tighter government regulations, leaving the developer struggling to finance the remaining construction of pre-sold units. As Chinese media scrutiny on automakers' financial situation rose, BYD on Wednesday refuted reports that it excessively pressured one of its dealers on cash flow. The dealer, Jinan Qiansheng in the eastern province of Shandong, did not immediately respond to a CNBC request for comment. BYD referred CNBC to its statement to Chinese media. In the early years of China's state-supported efforts to become a global leader in the emerging electric vehicle industry, the Ministry of Finance said it found at least five companies cheated the government of over 1 billion yuan ($140 million). The high-level policy encouraged a flood of startups, of which only a handful survived. In China, the average car retail price has fallen by around 19% over the past two years to around 165,000 yuan ($22,900), according to a Nomura report this week, citing industry data from Autohome Research Institute. Price cuts were far steeper for hybrid or range-extension vehicles, at 27% over the last two years, while battery-only cars saw prices slashed by 21%, the report said. It noted that traditional fuel-powered cars saw a below-average 18% price cut. In contrast, the average price of a new car in the U.S. was $48,699 in April, up nearly 1% from two years earlier, according to CNBC calculations of data from Cox Automotive. The average electric car price last month was an even higher $59,255. BYD's latest round of price cuts didn't include the company's higher-end models priced around 200,000 yuan, such as its flagship Han electric sedan. Reuters pointed out the newest model of the Han released in February was about 10% cheaper than its previous version, according to its calculations. The Chinese auto giant, which was backed by Warren Buffett in its early years, has rapidly captured market share in China with its wide range of cars at various price points. The company reported a net profit increase of 49% to 14.17 billion yuan last year. Total current liabilities rose by more than 60% to 57.15 billion yuan. Cash and cash equivalents fell slightly to 102.26 billion yuan. Rather than reflecting market expansion, double-digit growth of new energy vehicles sales in China is just eating into the business of internal combustion engine cars, Ying Wang, Fitch managing director, APAC Corporate ratings, told reporters Tuesday. She noted how the country's auto market hasn't grown much since 2018, and expects autos retail sales to only increase by low single digits this year. Automakers will keep on using price cuts to gain market share in China this year, she said. Wang pointed out another option is for companies to include more features, such as advanced driver-assist systems, for free instead of asking consumers to pay more for them as an add-on. Geely-backed Zeekr in March said it was releasing its advanced driver-assist system for free, while Tesla has attempted to charge its customers for a similar feature. A month earlier, BYD announced it was rolling out driver-assist capabilities to more than 20 of its car models. In the last several months, China's top leaders have increasingly called for efforts to address non-productive business competition, known as "involution." The term was mentioned in the premier's annual work report in March and in the market regulator's meeting last week which called for "comprehensively rectifying 'involutionary' competition." However, the massive effort to produce lower-cost electric cars in China, and the automakers' subsequent move to expand into other markets, has increased worries about the impact on other countries' auto industries. The European Union slapped tariffs on imports of China-made electric cars after probing the companies over the use of government subsidies in their manufacture. The U.S. also imposed duties of 100% on China-made electric cars, quashing hopes that the vehicles might enter the world's second-largest auto market. But in the EU, tariffs have had limited effect. In April, BYD outsold Tesla in Europe for the first time, according to JATO Dynamics. Tesla's Europe sales plunged by 49% that month, according to the European Automobile Manufacturers' Association.
CNBC
13-05-2025
- Business
- CNBC
Investment banks lift China growth outlook after surprise trade deal with U.S.
Financial institutions are rethinking their China calls after a surprise trade truce between Washington and Beijing, raising both the country's growth forecasts as well as stock market outlooks. On Monday, the U.S. and China reached an agreement to temporarily halt the majority of tariffs on each other's products for 90 days. Under the deal, mutual tariffs will be reduced from 125% to just 10%. This marks a significant easing of tensions between the two countries after the tit-for-tat that ensued following U.S. President Donald Trump's "reciprocal" tariffs on April 2, which had led to a swath of banks lowering their China growth forecasts. Now, several institutions are revising their China outlooks. UBS said in a note late Monday that China's GDP growth in 2025 could climb to between 3.7% and 4%, up from a previous base case of 3.4%, given how trade war de-escalation might lead to a "smaller shock" to China's economic growth. Morgan Stanley has also raised to its near-term quarterly China GDP forecasts on expectations that companies may try to speed up exports to take advantage of the lower tariffs. "While tariffs remain elevated, the suspension window could lead to front-loaded shipments and production," the investment bank's analysts wrote in a note. China's second-quarter GDP could come in higher than the current estimate of 4.5%, the bank's chief China economist Robin Xing and others wrote in the report. Additionally, Xing and his team now expect third-quarter growth to show temporary resilience, forecasting it to be above 4%. Earlier, Morgan Stanley had said growth could soften around 4%. ANZ Bank now sees potential for China's GDP to come in higher than 4.2% this year, after the Australia-headquartered bank revised its forecast to 4.2% from 4.8% in April. Similarly, Natixis sees the country's GDP growth at 4.5% this year, up from its base case of 4.2% if there are more proactive stimulus and further reduction in tariffs. This comes after the French bank slashed its China GDP forecast to 4.2% from 4.7% in early April. The optimism on growth prospects is improving the outlook for Chinese equities. Nomura has raised China equities to "tactical Overweight," and rotated some funds out of their position in India to China, it said in a note following the trade talks. Citi has raised its target for the Hang Seng Index by 2% to 25,000 by the end of the year, and expects it to hit 26,000 by the first half of 2026. Still, Citi's China equity strategist Pierre Lau said he prefers domestic plays that avoid tariff uncertainties. He has upgraded the consumer sector from neutral to overweight. Lau also highlighted the country's internet and technology sector as promising. "We see attractive risk reward in China stocks with market valuation remaining undemanding," said Maybank's chief investment officer Eddy Loh, who sees opportunities in the communication services and some consumer discretionary sectors. William Ma, chief investment officer of GROW Investment Group, who has typically been bullish on China, believes that the rebound in Chinese markets is a sustained re-rating, especially with the recent Chinese policy easing and consumption stimulus which could offer an extra boost to China's economy and markets. China's CSI 300 was marginally higher Tuesday after rising 1.6% in the previous session. Hong Kong's Hang Seng Index rose nearly 3% Monday, but was down 1.5% Tuesday. Some experts cautioned on not getting too carried away by what may be a tactical bounce in equities. While the U.S.-China trade talks were better than what markets had expected, the arrangement is still temporary and subject to further changes, said Loh. The 90-day tariff reduction and break does not guarantee a deal, especially given the deterioration of mutual trust between the U.S. and China, said Natixis' senior economist Gary Ng. Markets rallied because the trade talk results were a surprise and not priced in, said Eurasia's China director Dan Wang. "This doesn't change the bigger picture. China's stock market still depends on domestic fundamentals, which remain weak," she told CNBC, citing the slump in the property sector and rising local government debt which also makes the sector reliant on state-backed support. Trump, who sees tariffs as central to his political leverage against China, may not keep tariffs low for long, Wang added. "This is a temporary pause, not a breakthrough in the bilateral relationship. A 90-day truce is short in trade diplomacy," she said.
Wall Street Journal
12-05-2025
- Business
- Wall Street Journal
China's Growth Will Get a Boost From Tariff Reprieve, Morgan Stanley Says
A trade truce with the U.S. will boost China's economy, Morgan Stanley said. Some exports could be front-loaded as companies try to take advantage of the trade ceasefire. China's economic growth rate could top the bank's 4.5% forecast for the three months through June. Growth in the following quarter could beat the roughly 4% level that Morgan Stanley previously expected. 'The tariff pause offers a reprieve from what had begun to resemble a bilateral trade embargo,' economists including Robin Xing wrote.
New Straits Times
07-05-2025
- Business
- New Straits Times
China's yuan dips after Beijing announces sweeping monetary easing measures
HONG KONG: China's yuan slipped against the dollar on Wednesday after Beijing announced sweeping measures to ease monetary policy to aid growth amid rising trade conflicts between the world's two largest economies. Chinese authorities announced a raft of stimulus measures, including interest rate cuts and a major liquidity injection, as Beijing steps up efforts to soften the economic damage caused by the trade war with the United States. The move also comes just a day after the Chinese currency surged to a six-month high, supported by an unwinding of carry trades and a broader rush out of US assets and back into Asia. That has prompted some investors to believe the central bank is keen to keep the yuan stable for the time being. "Perhaps the worst of the depreciation pressure on the yuan has faded, and recent strength provided a good window for the People's Bank of China (PBOC) to ease while still being able to maintain its currency stability objective," said Lynn Song, chief economist for Greater China at ING. As of 0520 GMT, the onshore yuan traded 0.09 per cent lower at 7.2261 per dollar, while its offshore counterpart was down 0.14 per cent at 7.2215. Prior to the market opening, the PBOC set the midpoint rate , around which the yuan is allowed to trade in a 2 per cent band, at 7.2005 per dollar, its strongest since April 7 and 119 pips firmer than a Reuters' estimate of 7.2124. The gap between the official midpoint setting and market projection marked the narrowest level since the PBOC started setting its guidance much stronger than market expectations in mid-November, interpreted as a sign of unease over the currency's declines. Some currency traders said Wednesday's move could mark a shift away from defending currency weakness. Meanwhile, Chinese major state-owned banks were also seen busy buying US dollars and selling yuan in the onshore spot market on Tuesday, sources told Reuters, in an apparent attempt to slow the pace of yuan rises. Robin Xing, chief China economist at Morgan Stanley, said Wednesday's stimulus measures also reflected Beijing's intention to support domestic market confidence ahead of Sino-US negotiations. "But the overall policy stance remains reactive and supply-centric and can only partially offset tariff shocks," Xing said. US Treasury Secretary Scott Bessent and chief trade negotiator Jamieson Greer will meet China's economic tsar He Lifeng in Switzerland this weekend for talks that could be the first step toward resolving a trade war disrupting the global economy.
Yahoo
01-05-2025
- Business
- Yahoo
China PMI Is 'Worse Than Expected,' Morgan Stanley Says
Robin Xing, chief China economist at Morgan Stanley, says the latest PMI reading is "definitely worse than expected" and shows that "confidence is starting to be affected by the tariff shock." China's factory activity contracted in March, revealing early damage to the world's second-biggest economy from the trade war with the US. Sign in to access your portfolio
