At this crucial stage, new energy vehicles
have arrived at a tipping point where 90% of the manufacturers may face insolvency. A price reduction of 100,000 for Mercedes-Benz,
BMW, and Audi is no longer astonishing; even the automotive titan Toyota offers a buy one,
get one free deal. The aftermath of the price war is plummeting
stocks for automobile companies, including BYD and NIO; so people must wonder about the
underlying cause of this situation. Traditional car companies venturing into new
energy vehicle manufacturing is expected. However, Foxconn entering car production,
real estate company Evergrande joining the race, and the participation of other major
players led to the emergence of 100 Chinese new energy vehicle companies in the past decade. Regrettably, only BYD has turned a profit
among these enterprises, with a modest 3% net profit. As 2023 unfolds, Tesla has thrice reduced
its prices, and traditional luxury car companies have followed suit with significant price
reductions, leading to a drastic decrease in Chinese new energy vehicle brands' prices. Incomplete statistics reveal that thirty to
forty new energy brands vanished in the first quarter due to the fierce competition, with
the majority facing financial issues. Industry experts predict that very few Chinese
automotive makers will ultimately survive. In March, Shanghai-based Weltmeister (WM)
Motor experienced a factory shutdown, the dissolution of its headquarters, employee
layoffs, store closures, and even the brand's unfortunate association with the label of
a deadbeat. According to reports, WM Motor's last round
of financing occurred in March 2021, and after several financing rounds, the company raised
a total of 47 billion yuan. From 2019 to 2021, vehicles with a production
cost of 340,000 yuan could only sell for 120,000 yuan in the market, resulting in 78,900 units
sold and a cumulative loss of 17.5 billion yuan. WM Motor suffered a 220,000 yuan loss for
every car sold. Similarly, Shanghai-based Skywell Auto reportedly
halted production on April 1st due to equity freezing. An internal notice attributed the suspension
to financial predicaments and production and sales challenges, urging employees with new
job opportunities to voluntarily resign. In March, Evergrande Auto, having finally
commenced mass production, faced potential suspension risks due to its inability to secure
29 billion yuan in new financing. According to data, from mass production and
delivery in October last year to March this year, Evergrande sold a mere 900 cars. Such sales figures hardly win investor’s
trust in Evergrande Auto or raise their willingness to invest 29 billion yuan. In the face of this monumental shift, other
surviving car companies are grappling with losses, with even renowned brands like NIO,
Xpeng and Li Auto teetering on the brink of collapse. According to public records, NIO, a leading
player among the new forces, experienced a net loss of 14.5 billion yuan in 2022. Each vehicle sale incurred a loss of nearly
120,000 yuan, representing an increase of over 70,000 yuan compared to the previous
year. In the past five years, NIO has accumulated
a staggering loss of 44.68 billion yuan In a single week in mid-April, nationwide
sales amounted to a mere 700 vehicles More worrisome is the fact that by the end
of last year, NIO's available funds could no longer repay the debts owed to suppliers
and banks. Overcrowded product lines and excessive costs
for research and development, sales, and charging stations contribute to this predicament. If NIO cannot control these expenses this
year, the projected loss for 2023 could hover around 14 billion yuan. In the capital markets where NIO primarily
seeks funding, several prominent banks express pessimism towards the company. JPMorgan predicts a year-on-year growth rate
of 50-60% for NIO's 2023 delivery volume, while Bank of America Securities has downgraded
its sales forecast for the company for the next two years and anticipates increasing
net losses. If NIO continues to lose approximately 14
billion yuan annually in 2023 and 2024 and cannot secure significant financing, its available
funds may dwindle to around 17.5 billion yuan by the end of 2024. From a financial standpoint, this would suffice
to sustain only about one year of net losses. For Xpeng Motors, the first quarter data reveals
a 40% year-on-year decline in both sales and revenue, with a loss of 2.3 billion yuan—an
increase of over 80% compared to the previous year. In 2021, Xpeng Motors reported a net loss
of 9.1 billion yuan, with each vehicle sale incurring a loss of 75,000 yuan. Statistics indicate that Xpeng Motors' net
profit margin has remained negative over the past five years, culminating in a five-year
loss of 21.82 billion yuan. Guosen Securities ,a Chinese state-owned financial
services company, projects losses of 5.6 billion and 3.1 billion yuan for Xpeng Motors and
NIO, respectively, over the next two years. Currently, Xpeng holds 11.4 billion yuan in
cash, which can only go on a few more years without profit. In 2022, Li Auto suffered a loss exceeding
2 billion yuan, with each vehicle sale incurring a loss of approximately 27,000 yuan. Despite achieving a net profit of 270 million
yuan in the fourth quarter, the company has still accumulated a total loss of 6.47 billion
yuan over the past five years. Presently, Li Auto holds 37.5 billion yuan
in cash; without generating profit, the company can only endure for about four more years. In the second echelon of emerging forces,
a succession of losses is apparent. Leap Motor experienced a net loss of 5.1 billion
yuan in 2022, accumulating a net loss of nearly ¥10 billion over the past four years. Seres, regarded as a "dark horse" in 2022,
is projected to suffer an annual loss of ¥3.9 billion, amassing a loss of over ¥7 billion
in the previous three years. Nezha Automobile （parent company Hozon auto)
had a combined loss of ¥4.2 billion in 2020 and 2021. GAC Aion's losses reached ¥3.7 billion from
2019 to May 31, 2021, with each year's losses surpassing the last. Geely's ambitious Zeekr venture also experienced
a loss exceeding ¥3 billion in 2021 and 2022. It is clear that these new forces that are
already burdened with losses, have limited capacity for future price reductions. As Tesla enjoys earnings of $10,458 per car
sold and capital markets focus on profitability and operational efficiency, and faced with
the prospect of Tesla further reducing prices and traditional automakers accelerating the
rollout of new energy products, wealthy Chinese investors' continued support of this industry
appears increasingly unlikely. Industry experts suggest that if Tesla persists
in lowering prices, only a handful of China's 100+ new energy vehicle brands may survive
. BYD is the sole domestic new energy vehicle
brand to achieve profitability, albeit with a low profit margin. Its gross margin hovers around 14%, which
is lower than Tesla's net margin of 15%. BYD's net margin is even more disheartening,
at less than 3%, while Tesla's net margin in 2022 stood at 15%, with a gross margin
reaching 30%. Despite three price cuts this year, Tesla
announced an 11.4% net profit margin on April 20, 2023, for its first-quarter earnings. This marks the 15th consecutive quarter of
profitability, with total Q1 revenue reaching $23.329 billion—a year-on-year increase
of 24%. According to China's new energy vehicle insurance
data for March, Tesla's Model Y and Model 3 dominated their respective markets in terms
of pure electric vehicle sales. Model Y emerged as the best-selling SUV model
in a single month, while Model 3 maintained its position as China's top-selling pure electric
sedan. BYD could not offer a single model that rivalled
these two Tesla models, as evidenced by the numbers in the accompanying chart. At present, Tesla and BYD's primary customer
bases do not overlap. However, should Tesla continue to delve into
the ¥100,000 price range while maintaining its quality, it may very well pose a threat
to BYD's market share. Interestingly, recent news indicates that
Tesla plans to launch a more affordable Model Q, entering the new energy vehicle market
for vehicles priced under ¥200,000. This development suggests that BYD's days
of prosperity may be numbered. It is worth recalling that in March, BYD's
unsold older models were reportedly stored on the second floor and above of unfinished
buildings, with at least a hundred units in inventory. With each vehicle priced at over a hundred
thousand yuan, tens of millions of yuan are tied up in these unsold cars. The fact that they were hoisted onto the second
floor of unfinished buildings indicates that neither BYD nor its dealers expect to sell
these vehicles for several months. Otherwise, they would have been placed on
the first floor, making them more accessible for potential buyers. This situation of unsold BYD electric vehicles
has not escaped the notice of business magnate Warren Buffett, who has reduced his stake
in BYD from 20% to 10% through ten consecutive sell-offs since August last year. Not only Buffett but also China's affluent
middle class, who might prefer to drive a Toyota Camry, rather than BYD vehicles. In early April, Huawei's abrupt exit from
the new energy vehicle industry sounded the death knell for China's new energy vehicle
sector. The close relationship between Huawei CEO
Ren Zhengfei and China's top leadership may suggest that the decision to cut Huawei's
automotive endeavors was influenced by the Chinese Communist Party's highest ranks, who
would prefer not to see Huawei burn cash in the electric vehicle industry. Tesla has demonstrated excellent cost control,
as have renowned automakers Toyota, Honda, and Volkswagen. Once these companies complete their transition,
the future of China's new energy vehicle industry will be dominated by these major manufacturers. In order to compete, BYD must continue to
reduce prices, which will result in negative profits. Other Chinese automakers with even poorer
cash flow control will face a bloodbath in this competitive battlefield.
