Price slashing has become increasingly common in China's automobile industry, even as the industry progresses from EVs to smart vehicles.
According to David Xu, president of Tier-1 supplier Bosch China, carmakers have been demanding a 20% price cut, far surpassing the 3-5% in previous years. Some carmakers have even threatened to withhold payment if their suppliers do not slash prices.
With the car market in China devolving into cutthroat price competition over the past year, price slashing has now reached beyond the realm of EVs, and into smart driving systems. In particular, DJI Automotive's system has attracted much attention due to its price of CNY 5,000-7,000 (US$705-987). Other suppliers have quickly followed suit, and some carmakers have even been developing their own systems.
Although such low-priced systems claim to use advanced chips and algorithms to reduce the number of sensors required, industry insiders question if these methods meet the quality and safety requirements that consumers expect, and their actual performance on the road remains to be seen
In addition, automotive chips have also fallen victim to the price war. As an example, prices for electronic stability program (ESP) chips have fallen to CNY 10 (US$1.41) per chip, with ESP chips made by Texas Instruments falling from CNY 1,500 (US$211) a year ago to CNY 12 (US$1.69). The price for its TPS5120000DRCR chip has also fallen from CNY 70 (US$9.87) to CNY 1 (US$0.14).
However, industry sources note that individual chip or component prices cannot be used to gauge the general situation since prices will fluctuate between different suppliers and sales channels, the balance between supply and demand, and order volumes. Furthermore, since certified automotive parts are not easily replaceable, suppliers still hold some bargaining power, even for Tier 1 suppliers under immense pressure. The same can be said for Taiwan-based component makers.
Tier 1 suppliers face pressure from multiple fronts, including cost reduction and responsibilities, especially in the aftermath of accidents. As an example, after a recent fatal accident involving an Aito M7, both Bosch and Huawei had to publicly deny that they were the Tier 1 suppliers for this model.
The supplier was revealed to be Freetech. Seres, the carmaker, claimed that the driver's operations in the accident exceeded the range covered by the car's systems, and it would await investigation by legal authorities.
No end in sight for price war and layoffs
Most people in the industry believe that price slashing in China's car market will continue beyond the end of 2024. However, as the trend continues, buyers' fatigue has seemed to set in.
As a result, Chinese media reported that Nidec, a supplier of electric motors, and Forvia, the world's seventh largest automotive supplier, are bowing out from the market in China due to the pressure, following Mitsubishi Motor's exit from China in 2023.
Moreover, Guangqi Honda recently announced a round of 1,700 voluntary layoffs or 14% of its workforce. Of the only three EV makers to turn a profit, Li Auto has laid off roughly 18% of its workforce, or 5,600 employees, while Tesla will cut 10% of its jobs worldwide, and BYD in April announced a workforce "optimization" of 10%, which was widely interpreted as a layoff.
