[RahulNagaraj]

According to a media report, Chinese automakers are significantly raising the prices of their exported vehicles to maximise profits.

The strategy, reportedly led by BYD, sees the automaker price some of its export EV models nearly three times higher than what the model sells for domestically. However, even with this strategy, some Chinese carmakers are managing to undercut their competitors in the West.



As per the latest research, Chinese automakers price their models just below that of European brands, while offering more standard equipment & features. Also, even after factoring in all additional exportation costs, each EV from a Chinese automaker still manages to rake in thousands of dollars of additional profits.

Reports suggest that this is possible because Chinese manufacturers have rationalised costs at every stage of the manufacturing process. Battery costs, which are 18% cheaper in China, combined with the availability of government subsidies and cheaper labour and power costs, help bring down the price of a Chinese EV.

Stating a few examples, the report mentions that in some export markets,*the BYD Atto 3 is priced between 81% - 174% higher than its price in China. Similarly, a BYD Dolphin, priced at $37,439 in Germany, costs just $15,524 in China. BYD Seal prices are anywhere between 30% to 136% higher in foreign markets compared to its retail price in China.

This massive headroom also allows Chinese EV makers to offer price cuts & discounts to engage in a price war with their rivals.

Source: Reuters

Link to Team-BHP news

[SmartCat]

BYD's net profit margins (5 yr avg) is around 4%, which is a notch lower than other global giants.



I think BYD's strategy is to price the car really low in China, so that production lines are humming with activity and they achieve economies of scale.

[kinetic]

Its possible BYD is losing money on each vehicle they sell locally in an effort to capture the local market. It would explain the numbers posted above.

[extreme_torque]

I am not sure I understand. Europe first accuses Chinese makers of undercutting local competition because CCP is subsidising and threatening anti dumping duties. Now they are saying they are priced too high compared to their prices in China and yet even at high prices the local auto manufacturers cannot compete. Imagine if they sold at the same price as they do in China or even slightly higher - where would that leave the local manufacturers?

[ruskinash]

Originally Posted by extreme_torque

Imagine if they sold at the same price as they do in China or even slightly higher - where would that leave the local manufacturers?

Unlikely. If deemed a threat the government will introduce a policy to safeguard local manufacturers, ideally.

[Shreyans_Jain]

Originally Posted by ruskinash

Unlikely. If deemed a threat the government will introduce a policy to safeguard local manufacturers, ideally.

Question here is: how are the local or legacy manufacturers so damn incompetent? Sitting on massive profits from their burgeoning ICE divisions, enjoying benefits and breaks from their local governments, and still nowhere close to matching the Chinese at twice of what it costs the Chinese? Where is all the money going?

The report is from Reuters, so it is credible.

[NomadSK]

Originally Posted by SmartCat

I think BYD's strategy is to price the car really low in China, so that production lines are humming with activity and they achieve economies of scale.

Looks like they just want to eat the EV market as of now, be it anywhere.

In addition, more sales will get them more carbon credit points, which they can sell to various automakers and generate further revenues, so far its a lucrative business for Tesla.

This would be helpful for BYD to make inroads in EU and North America. Now its a catch 22 situation for both EU and Americas to let them in, due to environmental constraints or stop them, because of trade war. Even Australia will have the policy change, Jan 2025 onwards.

The target is applied nationally on average. Suppliers can still sell any vehicle type they choose but they'll need to sell more fuel-efficient models to offset any less efficient models they sell. If suppliers meet or beat their target, they'll receive credits. If they sell more polluting cars than their target, they will have two years to either trade credits with a different supplier, or generate credits themselves, before a penalty becomes payable. For example, if a supplier is above the target in 2025, it will be able work in 2026 and 2027 to generate credits to offset this.

[Shreyans_Jain]

Originally Posted by SmartCat

BYD's net profit margins (5 yr avg) is around 4%, which is a notch lower than other global giants.


I think BYD's strategy is to price the car really low in China, so that production lines are humming with activity and they achieve economies of scale.

Profits are a notch lower than other global giants. Notch being the key word. Notch lower, not wayyy lower. Which means they are going on similar lines as the legacy car makers.

It’s not like they are blindly burning cash to prop up their sales numbers in their home market, which is by far their biggest market. The company is inherently profitable, even at their supposedly cut-price China retail amounts.

[SmartCat]

Originally Posted by extreme_torque

Imagine if they sold at the same price as they do in China or even slightly higher - where would that leave the local manufacturers?

European manufacturers will see a 50% to 75% fall in sales, but then BYD is likely to go bankrupt. As the article says, high profit margin per unit sold in rest of the world sales is needed to sustain BYD profits.

Originally Posted by Shreyans_Jain

The company is inherently profitable, even at their supposedly cut-price China retail amounts.

Because of economies of scale:



If VW sells 100,000 EVs a year at $30,000 production cost, BYD might be able to produce the same segment car at $15,000 to $20,000 (just a number taken out of my hat) if the unit sales are 1 million EVs per year. Low price in China helps BYD sell millions of EVs in China, which in turn helps it achieve economies of scale low production cost. They are just breaking even in China as Reuters article says. Profits are coming from rest of the world sales.

This strategy cannot be replicated by European manufacturers because cranking up production without pre-existing demand is unheard of in business circles. It requires a massive investment to achieve this economies of scale production quantities, which European companies will never make (without pre-existing demand). But Govt can take that risk, and it is very likely that there was Chinese government intervention in the form of loans at favorable terms & production subsidies/incentives, across the supply chain (incl. component makers).

[extreme_torque]

Originally Posted by SmartCat

European manufacturers will see a 50% to 75% fall in sales, but then BYD is likely to go bankrupt. As the article says, high profit margin per unit sold in rest of the world sales is needed to sustain BYD profits.

I am saying how could they be too cheap and too expensive at the same time? Even at their current, "exorbitant" pricing, the local european manufacturers cant seem to match the Chinese either in spec or performance or range.

[SmartCat]

Originally Posted by extreme_torque

I am saying how could they be too cheap and too expensive at the same time? Even at their current, "exorbitant" pricing, the local european manufacturers cant seem to match the Chinese either in spec or performance or range.

You are misreading the intent of the article, probably going by Team-BHP title of the thread. Reuters author is not complaining that Chinese EV makers are price gouging Europeans. As the Reuters title suggests, the article is giving you an "insight" into this pricing phenomenon.

[Sensible_Speed]

I think the real takeaway here is that the European manufacturers have been overpricing their offerings, trying to fatten their dividend cheques. In the process, the sudden, unexpected onslaught of government backed Chinese firms has caught them with their pants down and they're now scrambling to mitigate the damage while desperately trying to hide all that money in their pockets. What the automobile sector needs is a renaissance from its legacy manufacturers. Reasonable pricing, built-to-last levels of quality and service will help remedy their problem. Unfortunately, this will also kill the goose that is currently laying their golden eggs for them.

[Ravi Parwan]

seems like a biased view on the economics of the car industry. There is no mention or accounting for

1. logistics costs for transporting cars from the factories in China to the end markets in Europe.
2. 10% tax on Chinese imports into Europe

This brings down their profits to slightly less shocking levels.

While the Chinese have made cutting manufacturing costs and achieving economies of scale an artform, let's also not forget they are being subsidized by the Chinese Govt (https://www.bloomberg.com/news/newsl...-electric-cars). There might be some accounting limitations that prevent the Chinese Auto manufacturers from passing out these subsidies on their exports.

Further, they are competing with their peers in China so have to keep margins low. In Europe and other markets, they are not making the markets, but following the pricing trends set by local players.

Even if their costs structures are lower, predatory pricing will cause a lot of hackles to rise in any outside market. As it is, EU is mulling over doubling their tax on Chinese imports from 10% to 20%.

I just wish that we could replicate even 10% of what the Chinese are doing in manufacturing to our industries. (without any of the negatives like exploitation of labour, government subsidies, copyright violations etc)

[careind]

I guess the mammoth subsidies offered by the Chinese government should also be factored in, which the other automakers do not have access to.

https://www.bloomberg.com/news/artic...evs-study-says

That could be one of the major reasons for the lower price in the domestic market.