Them’s The Brakes

What’s going on?

Data out on Wednesday showed that China’s car sales stalled at the start of this year.

What does this mean?

The Lunar New Year is China’s longest holiday, falling in either January or February every year. And because the break interrupts business, it makes sense to compare year-on-year figures in a two-month block – taking both January and February together. For cars, it seems that period was seriously rocky this year: overall sales fell around 20% from the same time last year, hitting just 2.7 million this time around. That’ll come as a bolt from the blue for folks expecting the reopening to jazz up China’s economy, but it makes sense when you dig deeper. Tax cuts that gave cars a jumpstart over the pandemic have been slashed, after all, and some subsidies for EVs have fallen by the wayside too.

Why should I care?

Zooming in: EVs are plugged in.

Scrapping those subsidies doesn’t seem to have done too much harm, though: plug-in hybrid and battery EV sales in China outpaced the market with a jump of 23%. That could be down to domestic manufacturers following Tesla’s lead and cutting prices – triggering what some see as a price war, and helping EVs nab some best-selling gas guzzlers’ market share. One knockout performer was Chinese EV maker BYD: half of last month’s top eight best-sellers were BYD cars, trouncing the two Tesla models on the list.

The bigger picture: The biggest loser.

These price cuts are good for motorists, and good for the planet too – but they’re not so kind to car companies’ bottom lines. The race to the bottom has got firms cutting prices faster than input costs are falling, which means that their profit margins are going to feel the pinch. And that’s not to mention the savvy drivers who are holding off on buying in the hope that prices will go even lower – which won’t do sales any favors.

—

Originally Posted March 8, 2023 – Them’s The Brakes