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Price Wars Intensify as China’s Car Market Faces Slowing Growth

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Weakening demand for hybrid vehicles has contributed to a significant slowdown in the growth of new energy vehicles (NEVs) in China. According to official data released on July 28, 2024, the growth rate for NEVs fell to 12% in July from nearly 20% in June. This decline reflects broader challenges within the Chinese automotive sector, where overall car sales increased by just 6.9% in July, a stark contrast to the 18.6% annual increase observed the previous month.

The Chinese government is actively addressing the issue of overcapacity in vehicle manufacturing, which has led to aggressive price competition among automakers. This environment has resulted in financial losses for numerous companies operating in the sector. Data from the China Passenger Car Association indicates that sales of hybrid vehicles, including plug-in and extended-range models, dropped by 3.6% year-on-year in July. This decline occurred despite a surge in battery electric vehicle (BEV) sales, attributed to advancements in battery technology and improvements in vehicle range.

While the overall growth in NEVs has slowed, these vehicles have continued to outsell traditional gasoline-powered cars for a fifth consecutive month. The increasing demand for BEVs has allowed certain manufacturers to achieve record sales figures in July, notably companies like Leapmotor, Xpeng, and Xiaomi. Nevertheless, market leader BYD, which heavily depends on hybrid models, reported a third consecutive month of declining sales in China. BYD’s share of the NEV market fell to 27.8% in July, down from 35.4% in the same month the previous year.

The persistent issue of overcapacity has not only impacted the automotive sector but has also affected China’s clean technology industries, including solar panel and electric vehicle manufacturers. As the government seeks to remedy this situation, measures aimed at curbing excess capacity have been implemented. According to a report by research firm Rhodium Group, intense competition among electric vehicle and battery manufacturers for government incentives has led to a sharp decrease in prices. While this has facilitated the wider deployment of EVs, it has also resulted in significant overcapacity, particularly in battery production, which poses challenges for new market entrants.

As the Chinese automotive industry navigates these complex dynamics, the future of NEVs remains uncertain. The balance between stimulating growth and managing overcapacity will be crucial for the sector’s sustainability moving forward.

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