China warns of ‘penalties’ against carmakers for price war
Other than slashing prices, some automakers have offered incentives such as interest-free loans to entice buyers
[HONG KONG] Chinese regulators warned of “severe penalties” against automakers after they started a new round of price cuts, defying a campaign by authorities to curb excessive competition.
The Ministry of Industry and Information Technology (MIIT), along with the market regulator and the country’s top economic planner, convened a meeting with the heads of 17 carmakers earlier this week, during which the authorities said that they would step up investigations into production costs and price monitoring. They warned of “severe penalties” against companies for violations, according to a statement by MIIT on Thursday (Jan 15).
The meeting was the second this week during which authorities spoke about restoring order to a market that has been plagued by a long-running price war.
On Tuesday, nearly two dozen agencies, including the Ministry of Finance, held a gathering with energy companies and automakers on promoting the electric vehicle (EV) industry, such as engineering new technologies, including solid-state batteries and autonomous driving.
Despite repeated warnings, carmakers have found it difficult to stop price discounting as they contend with a slump in demand from the scaling back of state subsidies and the slowing economy. BMW, Volkswagen and more than a dozen other brands have slashed prices or offered incentives since the start of January to help boost sales, after a tax break on buying EVs and hybrids and trade-in subsidies were reduced.
However, UBS’s head of China autos research, Paul Gong, said that companies will continue to find ways to adapt, such as through model updates, configuration changes and even rebranding.
Other than slashing prices, some automakers have offered incentives such as interest-free loans to entice buyers. Tesla launched a seven-year ultra-low interest financing plan last week, while Xiaomi offered an interest-free three-year loan on its YU7 sport utility vehicle, and later matched Tesla with a similar seven-year ultra-low interest plan.
“While government policies have shown some short-term results, they can’t obstruct the market’s ‘invisible hand’ in the long run,” Gong said at a briefing in Shanghai earlier this week. “To truly fix the underlying issues, the industry needs consolidation.” BLOOMBERG
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