China's Intense EV Price War Taking a Toll on Car Dealers

Auto dealers in China have appealed to carmakers to stop dumping too many cars on their sales outlets.

The call on Tuesday comes as intense price wars limit the dealers’ cash flow and drive their profitability down to the extent some have been forced to close.

The proposal came on the heels of an official call over the weekend for the auto industry to halt bruising price wars.

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Conditions facing car dealers have become “even more severe” amid a new round of hefty discounting since the second quarter, the China Auto Dealers Chamber of Commerce said in a statement.

Automakers should set reasonable annual production and sales targets and should not transfer inventory to dealers and force them to stockpile cars, the chamber proposed on Tuesday.

Sector ‘plagued by overcapacity’

The cycle of payments to dealers should be shortened and dealers “shall not be coerced to withdraw from the network and close their stores in the name of optimising network channels,” it said.

A large dealer of Chinese electric vehicle maker BYD’s cars in the eastern province of Shandong went out of business with at least 20 of its stores found to be deserted or shut, local media reported last week.

Last week, the country’s leading carmaker announced discounts on more than a dozen models, including a more than 22% cut on the starting price of its cheapest model, the battery-powered Seagull hatchback, to 55,800 yuan ($7,765), from nearly $10,000.

Analysts say BYD’s price cuts, along with other developments, signal a potential tipping point, where weaker players can no longer sustain deepening losses from the downward spiral on prices.

China’s current economic model, with massive state subsidies funnelling substantial support to key nodes of production such as renewables, electric vehicles, plus other tech sectors such as semiconductors, has been strongly criticised by Western officials,

They say the country’s ‘over-investment and excess capacity’ forces them to impose tariffs to protect local industries – as the Trump Administration began doing early this year.