Competition, lower costs escalate China's EV price war

  • Market: Battery materials, Metals
  • 03/04/24

Chinese electric vehicle (EV) manufacturers have escalated a price war over the past couple of months, mainly prompted by intensifying market competition and falling battery manufacturing costs, according to market participants.

Chinese EV producer Nio, whose sales surged by 31pc year-on-year to 160,000 units in 2023, on 1 April began offering a 1bn yuan ($138mn) package of subsidies to encourage gas-fuelled car owners to trade in their cars for a Nio-produced EV. Fellow automaker Chery on the same day also announced a "10bn yuan subsidy" campaign to offer discounts, coupons and purchase tax credits to car buyers.

Nio, founded in 2014, took the lead in adopting an aggressive money-burning strategy to expand its share in the Chinese new energy vehicle (NEV) market, to take advantage of the country's ambitions to accelerate vehicle electrification. The strategy proved to be unsustainable and the firm faced financial issues around late 2019 when it had accumulated a loss of Yn26bn. This forced Nio to look for investors, and it received Yn7bn from the Hefei municipal government in April 2020.

These promotion campaigns are in response to a plan introduced by the Chinese government in early March to promote the replacement of industrial equipment and consumer goods through large-scale trade-ins, as part of Beijing's efforts to meet its economic growth target. China in early March set this year's economic growth target at 5pc, stable from the previous year's target, but lower than the actual growth of 5.2pc achieved in 2023.

The automakers' promotion campaigns are adding fuel to the flames of competition in the Chinese EV market. China's largest EV producer BYD has reduced prices by as much as Yn20,000/unit for some NEV models to boost sales after the 10-17 February lunar new year holiday, with many of its domestic NEV counterparts, including SAIC GM-Wuling, Neta, X-Peng and Zeekr, following suit by cutting vehicle prices to attract orders.

China has led global EV sales over the past decade, driven by its 2030 and 2060 decarbonisation targets, but the Chinese EV market is facing a higher risk of overcapacity given an increasing number of new participants in the industry, which are called "new car-building forces" in China. There are more than 20 of such companies, with the major ones being Li Auto, X-Peng, Nio, AITO, Leapmotor, Zeekr and Xiaomi.

Chinese technology firm Xiaomi, which designs and manufactures consumer electronics and home appliances, on 28 March launched its first EV model, the Xiaomi SU7, a battery electric full-sized sedan, that marked the firm's entry into China's fiercely competitive EV market. Xiaomi adjusted the debut prices for the SU7 down by more than Yn20,000 at the last minute, in view of the ongoing price war.

Domestic EV manufacturers' promotions are also part of their efforts to compete with vehicles running on fossil fuels, as EVs have not yet gained dominance in the Chinese automotive market, despite increased consumer adoption in recent years. A lack of public charging facilities is the main reason for consumers' dissatisfaction with EVs, especially in the country's third- and fourth-tier cities, as well as rural areas.

The competition between internal combustion engine vehicles and EVs is expected to continue in the longer term. China's growing sales of NEVs — mostly battery electric vehicles — are eliminating gasoline demand by 25,000 b/d, according to Argus estimates. BYD last month unveiled a forecast that China's NEV penetration in weekly sales is likely to exceed 50pc in the coming three months.

Falling battery manufacturing costs resulting from lower feedstock prices have created room for EV manufacturers to make price concessions. Argus-assessed costs for battery cathode active material lithium iron phosphate have fallen by nearly 80pc from November 2022 when lithium feedstock prices hit a record high, to $13.95/kwh currently. Continuous output expansions at Chinese lithium refineries and overseas mining firms have outweighed demand growth from the EV battery segment, causing lithium feedstock prices to fall significantly over the same period. Argus-assessed prices for key battery feedstock lithium carbonate decreased by 80pc to Yn109,500-113,500/t ex-works over the same period.


Sharelinkedin-sharetwitter-sharefacebook-shareemail-share

Related news posts

Argus illuminates the markets by putting a lens on the areas that matter most to you. The market news and commentary we publish reveals vital insights that enable you to make stronger, well-informed decisions. Explore a selection of news stories related to this one.

News
15/04/24

Poland's JSW declares force majeure on coking coal

Poland's JSW declares force majeure on coking coal

Warsaw, 15 April (Argus) — Polish coking coal and met coke producer Jastrzebska Spolka Weglowa (JSW) declared force majeure on some of its coking coal contracts and cut its output outlook following a fire at its Budryk mine on 5 April. JSW expects production at Budryk mine — which produces premium hard coking coal, semi-soft coking coal, as well as thermal coal grades — to fall by 400,000t than previously planned as a result of the blaze. The fire affected a long wall located at a depth of 1,290m that was planned for closure, but it forced the evacuation of mines from affected areas, the company said. A fire that broke out at the firm's premium hard coking coal-focused Pniowek mine in December last year will also result in greater production loss than previously expected, JSW said. Output at Pniowek will be down by 450,000t from the 350,000t reduction estimated in December. JSW operates four mines in southern Poland. In the first quarter of this year, JSW produced 2.4mn t of coking coal, representing a decline of about 10pc both on the year and on the quarter. JSW's production of coke reached 830,000t in the first quarter of this year, up by 8pc on the year but down by 5pc from the fourth quarter of last year. Metallurgical coke typically accounts for about three-quarters of JSW's total coke output. Its met coke sales significantly exceeded output, reaching 990,000t in the first quarter of this year. JSW last year produced 10.9mn t of coking coal, down by 1pc on the year, and 3.35mn t of coke, up by 4pc on the year. By Tomasz Stepien Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Read more
News

Japan’s Nippon Steel halts output at Kimitsu plant


15/04/24
News
15/04/24

Japan’s Nippon Steel halts output at Kimitsu plant

Tokyo, 15 April (Argus) — Japan's largest steel mill Nippon Steel has partially suspended production today at its Kimitsu plant in eastern Chiba prefecture because of operational issues. Nippon Steel suspended production at some of its blast furnaces in the plant on the back of operational issues, said the company, without disclosing further details. The suspension is temporary, a company representative told Argus , although it remains unclear when the plant will resume production. Operational issues can come in a variety of forms, the representative added, including the quality of the raw materials. The firm has not disclosed output volumes at the Kimitsu plant. Nippon Steel's overall crude steel output for the April 2023-March 2024 fiscal year is estimated at 35mn t , according to the firm, up by 2.2pc from a year earlier. By Yusuke Maekawa Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

News

G7 leaders to meet over Iran's attack on Israel


14/04/24
News
14/04/24

G7 leaders to meet over Iran's attack on Israel

Dubai, 14 April (Argus) — Leaders of the G7 will meet today, 14 April, to co-ordinate a diplomatic response to Iran's overnight air attack on Israel, which ushered a new phase in a six-month conflict that is threatening regional escalation. G7 presidency Italy "has organized a conference at leaders' level for the afternoon of today," Italian prime minister Giorgia Meloni said on X, formerly Twitter. US President Joe Biden has pledged a co-ordinated G7 diplomatic response and condemned the Iranian assault. Iran fired hundreds of drones and missiles against Israel on the evening of 13 April, according to the country's state-owned news agency Irna. Almost all were intercepted before they reached Israeli airspace and there were no fatalities reported by Israel. One civilian was injured and an air force base in southern Israel was lightly damaged, according to the Israel Defence Forces (IDF). The Iranian attack came in response to a suspected Israeli air strike on the vicinity of Iran's embassy compound in Damascus, Syria, on 1 April. Tehran's foreign minster Hossein Amir-Abdollahian said Iran considers this to be the end of its operation. But energy markets, which have been supported in recent weeks by a geopolitical risk premium, will face a week of uncertainty about whether Israel will retaliate. The front-month June Ice Brent contract was trading at $90.45/bl before markets closed for the weekend, and hit a more-than five month high of $92.18/bl on Friday, 12 April. Israeli officials said the attack was "a severe and dangerous escalation" from Tehran. Israel's war cabinet is meeting today to discuss a response. "We will build a regional coalition and exact the price from Iran in the fashion and timing that is right for us," said cabinet minister Benny Gantz. The US is urging Israel to claim victory for its defence, in an apparent effort to discourage Israeli prime minister Benjamin Netanyahu's government from feeling compelled to retaliate. While noting that Israel ultimately will make the decision as to how to respond, White House national security communications co-ordinator John Kirby, in a televised interview today, hailed what he called Israel's "incredible military achievement" in defending itself against the attack. Very little managed to penetrate the defensive shield, "and the damage was extraordinarily light," he said. The US military played a role in helping to defend against the attack, bringing down "several dozens of drones and missiles," Kirby said. UK prime minister Rishi Sunak said the Royal Air Force shot down "a number of Iranian attack drones". Israel's western allies are urging it to show restraint as they try to prevent a wider conflict in the Middle East, which could directly affect oil producers and send energy prices soaring. President Biden is especially keen to avoid such a scenario in an election year. By Bachar Halabi and David Ivanovich Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

News

Gunvor set for buying spree after windfall: CEO


12/04/24
News
12/04/24

Gunvor set for buying spree after windfall: CEO

London, 12 April (Argus) — Trading firm Gunvor plans to use part of a massive earnings windfall over the past two years to build out its asset base, its chief executive Torbjörn Törnqvist told Argus . "Today, we are under-invested in assets so we will change that," Törnqvist said, adding that investments would be broad based and to some extent opportunistic. "We will employ quite a lot of capital in investments." Independent commodity trading companies are sitting on unprecedented piles of cash after two years of bumper earnings arising from supply chain disruptions and market volatility. While Geneva-based Gunvor is smaller than its peers Vitol, Trafigura and Mercuria, it is still a huge company by most metrics. It reported revenues of $127bn in 2023 and a profit of $1.25bn, following a record $2.36bn in 2022. It has kept most of its earnings in house and had an equity position of almost $6.16bn by the end of 2023 — its highest ever. Törnqvist is eyeing further growth. "We will definitely be a much bigger company, that I can say," he replied when asked where he saw Gunvor in 10 years' time. "I think we will grow in tune with the [energy] transition." Trading firms are looking for ways to keep their competitive advantage, particularly given the uncertainties associated with the energy transition. One emerging trend is an appetite for infrastructure. Vitol is in the process of buying a controlling stake in Italian refiner Saras, which operates the 300,000 b/d Sarroch refinery in Sardinia. Trafigura said this week that it is in talks to buy ExxonMobil's 133,000 b/d Fos refinery on the French Mediterranean coast. Part of the rationale behind these moves is to increase optionality and take advantage of the loss of Russian products to the European market, as well the closure of large chunks of local refining capacity. Gunvor owns the landlocked 100,000 b/d Ingolstadt refinery in Germany and a 75,000 b/d refinery in Rotterdam, where it plans to shift away from fossil fuel use. "Many oil refineries have been up for sale and still are," Törnqvist said. Asked if Gunvor was looking for something similar, he said the company is interested in the "right opportunity" whether in upstream, downstream, midstream or shipping. "It all feeds into what we are doing and all supports our underlying trading," he said. But Törnqvist suspects a lot of Gunvor's growth will come from gas and power — areas where trading companies are already seeing rising profits. The company made its first investment in a power generation asset late in 2023, when it agreed to buy BP's 75pc stake in the 785MW Bahia de Bizkaia combined-cycle gas turbine plant in Bilbao, Spain. It has signed a slew of LNG offtake agreements in the past year and continues to grow its LNG tanker fleet . "We're building logistical capabilities in LNG," Törnqvist said. "Oil is here to stay" Törnqvist said Gunvor is well placed to navigate the energy transition, and is stepping up investments in renewables and biofuels and expanding into carbon and metals trading. "There will be disruptions, there will be different paths to the transition in different parts of the world which go at different paces and have different priorities and ways to deal with it," he said. "This will create opportunities." But Törnqvist is clear that oil and gas will remain an integral part of Gunvor's business. "We feel that oil is here to stay," he said. "And it will grow for several years." By Aydin Calik Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

News

Japan’s Daihatsu to reopen Kyushu, Osaka car plants


12/04/24
News
12/04/24

Japan’s Daihatsu to reopen Kyushu, Osaka car plants

Tokyo, 12 April (Argus) — Japanese car manufacturer Daihatsu will resume operations at its Kyushu and Osaka plants from 6 and 7 May respectively, which will mark a full reopening of its domestic facilities. Production volumes at these plants were undisclosed. Daihatsu suspended all of its operations in December 2023 after it was accused of tampering with safety test results. It resumed partially in February but most of its production facilities, including its major plant in Osaka, remained closed. Daihatsu produced nothing in January and 6,692 units in February, less than one-tenth of its production a year earlier. This led to year-on-year declines in Japan's total car output in January and February . By Yusuke Maekawa Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Business intelligence reports

Get concise, trustworthy and unbiased analysis of the latest trends and developments in oil and energy markets. These reports are specially created for decision makers who don’t have time to track markets day-by-day, minute-by-minute.

Learn more