BMW i3 price drops by 50%? Joint-venture car companies forced to cut prices for survival in China

Recently, it was reported that the bare car price of BMW i3 series in China is about RMB 170,000 after discount, a “50% off” situation from the official guide price of RMB 353,900. This substantial price reduction is impacted by the surge of Chinese brand electric vehicles. With the rise of Chinese brand electric vehicles, the market share of joint venture and foreign cars in the Chinese market is continually being squeezed. It is reported that in 2023, BMW Group delivered a total of 824,900 BMW and MINI cars in the Chinese market, an increase of 4.2% year-on-year. Among them, nearly 100,000 pure electric BMW models were delivered throughout the year, becoming a sales pillar for BMW in the China region, which shows the strong support of the Chinese market for electrified vehicles.

Not only the BMW Group, but also car companies like FAW-Volkswagen and Porsche have been impacted by Chinese car companies. These car companies are not only suffering from unsatisfactory sales performance in the Chinese market, but they are also forced to lay off employees due to personnel costs. Prior to this, FAW-Volkswagen announced a layoff plan for its Foshan branch. On May 13, a document titled "Report on the Planned Reduction of Staff at FAW-Volkswagen Foshan Branch" showed that FAW-Volkswagen Foshan Branch has more than 700 redundant employees who are difficult to continue arranging for jobs, planning to select the last 565 in performance from a batch of employees (involving 690 people) who joined from July 2019 to the expiration of the labor contract in July 2024, and the labor contracts were not renewed with the employees with the reason of labor contract expiration, and economic compensation was given in accordance with relevant legal regulations.

According to public data, from February to April 2024, the cumulative retail sales of FAW-Volkswagen decreased by 16.2%, 4.2%, and 15.6% year-on-year respectively, with sales decline for three consecutive months. Porsche China dealers were blaming the Porsche brand official for the inventory problem caused by poor car sales. On May 27, Porsche issued a joint statement in response to local dealers, indicating that it will seek effective ways to actively respond to market changes and discover new opportunities in challenges. With the subsidies and preferential policies of the Chinese government for the electric vehicle industry, China's electrified vehicles are developing rapidly, and the decline in sales is a direct manifestation of the market share being squeezed by China's new force brands.

Recently, due to the impact of policy inclination and the market saturation of the electric vehicle industry, China's independent brand auto companies have fallen into a promotional mode of continuously attracting consumers through price reductions. In the short term, consumers can get products at low prices, but blindly reducing prices will affect the quality assurance of after-sales services and also affect the profitability and normal operations of car companies. Regarding the current fierce "price war" phenomenon in the Chinese auto industry, Cui Dongshu, Secretary-General of the China Passenger Car Alliance, said that from January to May 2024, nearly 60 electric vehicles in China have cut prices, which is indeed a "rare" price war.

Although China's independent brand electric vehicles are in a developmental trend due to policy support, the rapidly increasing sales volume cannot bring actual profits to the auto companies. Rampant price wars is not a sustainable development model, only reliable technology and services are the optimal choice for development. According to public financial reports, Toyota's operating profit is 5.353 trillion yen, which is about 2500 billion yuan RMB. And after deducting income tax expenses, the net profit is 2300 billion yuan RMB. In comparison, the statistical report of 18 listed auto companies in China in 2023 shows that the net profits of 12 profitable companies combined do not exceed 900 billion yuan RMB, which is equal to Toyota's net profit being 2.5 times that of these 12 Chinese auto companies.