Faced with a bruising price war in the fast growing but crowded domestic market for electric vehicles, Chinese automobile manufacturers are pressuring suppliers to deliver hefty cost cuts.
China’s BYD, the world’s largest manufacturer of electric vehicles, asked a supplier to reduce its product prices by 10 percent starting next year, according to a company email that was apparently leaked and circulated widely on the internet in China.
He Zhiqi, BYD’s executive vice president, said that the competition for so-called new energy vehicles — China’s preferred phrase for fully electric and gas-electric hybrid vehicles — was entering a “decisive battle” or “knockout match,” according to the email with the subject line “BYD Passenger Vehicle Cost Reduction Requirements in 2025.”
“In order to enhance the competitiveness of BYD passenger cars, we need the entire supply chain to work together and continue to reduce costs,” Mr. He wrote.
On Wednesday, a BYD spokesman wrote on Weibo, the Chinese social media site, that annual price negotiations with suppliers are a common practice in the automotive industry. He added that because of BYD’s large scale, it sets “price reduction targets” for suppliers that are not mandatory and can be negotiated. He did not comment on the email specifically nor whether other suppliers were facing similar demands.
BYD did not respond to requests for comment.
Earlier this week, SAIC Maxus Automotive, an arm of Chinese state-owned automobile manufacturer SAIC, sent a letter to its suppliers asking for a 10 percent reduction in costs, citing oversupply in China’s automobile market, according to news reports in state media. The letter noted that there are so many manufacturers launching new cars that it does not expect the price war to abate anytime soon.
SAIC Maxus Automotive, which makes trucks, sport utility and electric vehicles, did not immediately respond to an email seeking comment.
China’s electric vehicle market is the world’s largest but also its most cutthroat, with dozens of brands jostling for position. The intense competition has ignited a price war among manufacturers battling for market share and brand recognition.
The fight has also moved overseas as many Chinese brands look to markets like Thailand and Brazil, where they can sell electric vehicles at a significantly lower price than many existing automakers.
In its latest price reduction in China, Tesla announced on Monday a cut of about $1,400, or about 4 percent, for its Model Y sport utility vehicle until the end of the year.
A shakeout in the industry is starting to take shape as companies burn through cash. In September, market regulators in Shanghai listed the local offices of Hycan Auto, originally a joint venture between Chinese electric vehicle brand Nio and automaker GAC Group, as a “company with abnormal operation.” Hycan Auto dismissed employees and had not paid compensation to laid-off workers, Chinese media reported.
Chinese electric car brand Hozon Auto also slashed costs by cutting salaries, eliminating jobs and laying off staff to improve its cash flow, according to Chinese media.
From January through October, Chinese companies sold 9.75 million fully electric and hybrid vehicles, an increase of 34 percent from a year earlier, according to the China Association of Automobile Manufacturers. About one million of those vehicles were exported outside of China.
BYD is well positioned as the leader with a market share of around 35 percent. In China, its biggest market, BYD sold 2.9 million fully electric and hybrid vehicles in the first 10 months of the year, an increase of 35 percent from a year earlier, according to the China Passenger Car Association. Globally, BYD has broken into the top 10 of total vehicles sold and looks poised to pass Ford and Honda soon.
The company has aggressively expanded overseas. It has built assembly lines in Brazil, Hungary, Thailand and Uzbekistan. It is also looking to put a factory in Mexico, a market where it expects sales to double next year.
But BYD and other Chinese carmakers moving into Mexico have put some plans for factories on hold because of uncertainty surrounding the incoming administration of President-elect Donald J. Trump, Mexican officials have said.
Mr. Trump said on Monday that he planned to impose a 25 percent tariff on all goods from Mexico and Canada until those countries stopped the flow of migrants and drugs into the United States. During the presidential campaign, he threatened to heap additional tariffs on products from U.S. companies that moved manufacturing to Mexico.
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