Summary of Key Points
In July, the sales volume of new energy vehicles in China exceeded 60% for the first time (reaching 60.4%), marking a shift from new energy being a supporting role to a central one. However, the industry's profits are under pressure: the automotive manufacturing sector's profits declined by nearly 20% in the first half of the year, with many companies experiencing significant losses or even going bankrupt. The competition has shifted from competing for market share of traditional fuel vehicles to intense rivalry among new energy players, accelerating the elimination process. At the same time, overseas markets have become a new source of growth (with exports exceeding one million units in July), but entering these markets is not a safe haven; companies must demonstrate their ability to adapt to local conditions. The industry has entered a new phase, where the focus is no longer on who sells the most, but on who can generate sustainable profits, operate more efficiently, and expand overseas more steadily.
I. Penetration Rate Hits 60%: Cold Reflections Behind the Milestone
What does a penetration rate of 60% mean? Simply put, for every 10 new vehicles sold, 6 are new energy vehicles. This is an important milestone in China's electrification efforts—new energy has finally become a major player in the automotive industry. However, this figure hides underlying concerns: previously, new energy companies were all competing for the same market share of fuel vehicles; now, as the share of fuel vehicles decreases, they are competing with each other for the remaining market. For example, when one company sells a new energy vehicle, it may not mean that another company sells one less fuel vehicle; instead, it could mean that another new energy company sells one fewer units. This is similar to a new student joining a class where everyone initially shares the teacher's snacks, but as the snacks run out, they start competing with each other for what others have. Therefore, 60% marks the beginning of an elimination process, not a celebration.
II. More Sales Mean Greater Losses? Three Main Reasons for Profit Pressure
Why do increasing sales lead to declining profits? The core issues are high costs, low prices, and rapid product iteration:
1. Costs Remain High: Prices of battery materials (lithium carbonate), chips, metals, etc., continue to rise, and the cost of developing advanced driving systems and infotainment features is also substantial. To be competitive, vehicles must come equipped with these features, such as automatic parking, large screens, and improved range, which all increase costs.
2. Price War: Price wars have been ongoing for over a year, with manufacturers frequently lowering recommended prices, offering cash discounts, or adding extra features without increasing prices. For instance, if a vehicle sold for 200,000 yuan last year, it may now sell for 180,000 yuan with additional features, squeezing profits.
3. Shorter Product Lifes cycles: The lifespan of vehicles has shortened from 3-5 years to 1-2 years. The cost of research and development, manufacturing molds, and equipment is not fully recovered before the next model needs to be launched. For example, if a company invests 100 million yuan in molds expecting to sell 100,000 units but only sells 50,000, the cost per unit doubles, forcing them to reinvest for the next model.
For instance, Great Wall Motor's sales increased by 2.48% and its overseas sales grew by 47% in the first half of the year, yet its profits declined by nearly 60% due to rising costs, lower prices, and additional expenses associated with exporting.
III. Divergence Among Companies: Some Profit, Some Lose—What Are the Differences?
In the first half of the year, company performances varied significantly:
1. Profiting but Less: Great Wall and Changan both saw profits decline by more than 50%. Great Wall's sales increased, but its profits decreased; Changan experienced a decline in both sales and profits.
2. Severe Losses: GAC lost 4-4.5 billion yuan, Seres went from making a profit of 2.9 billion yuan last year to losing 1.5-1.8 billion yuan this year, and BAIC BluePark lost 1.7-1.9 billion yuan. The reasons vary: GAC's joint ventures are holding back performance, and competition is fierce; Seres faces rising raw material costs and asset impairment; BAIC BluePark continues to invest heavily in research and development and marketing.
3. Outperforming the Market: Geely is an exception. Its sales only increased by 1% in the first half of the year, but revenue grew by 15%, and core profits increased by 46%, with a gross margin of 17.9%. The secret lies in its product strategy—selling more high-margin models and exporting higher-priced vehicles, as well as using modular production to reduce R&D costs.
This shows that sales volume is not the only indicator; the ability to convert sales revenue into actual profits is what matters.
IV. Is the Price War Over? Regulators Guide Competition Towards Better Practices
This year, regulators have started to curb price wars, targeting new energy vehicles as a focus for addressing excessive competition. The State Administration for Market Regulation has banned malicious price cuts that sacrifice quality. The People's Daily has also called for a shift from focusing on volume to focusing on quality and competitiveness. This means competing on factors such as range, advanced driving systems, and customer service.
For example, instead of competing on who can offer the lowest price (e.g., 200,000 yuan), companies are now competing on who offers the best range, more stable driving technology, and more comfortable interiors. This is more beneficial for leading companies, which have more resources to invest in research and development and building platforms.
V. Overseas Expansion as a New Growth Driver, but Not a Safe Haven
With domestic competition intensifying, companies are looking abroad for opportunities. In July, vehicle exports exceeded 1.04 million units (for two consecutive months), with new energy vehicles accounting for 553,000 units, a 150% increase year-over-year. However, expanding overseas is not easy:
1. Profitability Is Uncertain: Although Great Wall's overseas sales increased by 47%, its profits still declined due to additional costs such as tariffs and exchange rate fluctuations.
2. Localization Is Essential: Simply selling vehicles is not enough; companies need to produce locally. For example, BYD has built a factory in Hungary, and Xpeng and Stellantis are collaborating in Europe to reduce tariffs and better meet local market demands.
3. Fiercer Global Competition: European markets have higher standards for quality and regulations, and companies must compete with established brands like Volkswagen and BMW. The IEA predicts that global electric vehicle sales will reach 23 million units by 2026, but the competition is fierce.
Geely's success demonstrates that while expanding overseas can be profitable, it requires a focus on high-margin products and localized operations. Its overseas sales increased by 158%, and the proportion of higher-margin products grew, resulting in a higher gross margin.
Conclusion: 60% Is a Turning Point—The Next Phase Focuses on Core Competencies
A penetration rate of 60% marks a significant shift. The focus has moved from competing for market share to focusing on survival skills, such as profitability, efficiency, and stable overseas expansion. For consumers, cheaper vehicles may be available in the short term, but only companies that can generate sustainable profits will survive and provide better products and services in the long run. For companies, the era of “sales volume first” is over; the era of “profitability and capability” has begun. Those who excel in R&D, cost management, and international expansion will be the ones to stay ahead in the market.