China remains a critical car market while a reshuffle has been underway. Several suppliers who had focused on safety components entered the EV radiator segment per customers' requests, and it has been a challenging expansion.
Although China seems to have a huge EV market, sources said the country has significant and bloody component price competition. As demand for EV radiators rises, suppliers have invested tremendously in R&D. Intangible costs like communication with carmakers and sample deliveries are also notable.
Sources said China-based automotive OEMs have ignited another round of price war with the government's support, impacting the profits of carmakers and their supply chains.
For example, Great Wall Motor's financial report showed the company achieved CNY173.2 billion (US$24.25 billion) in 2023, up 26% from 2022. However, it reached only CNY7.02 billion in net profit, decreasing by 15.1% year-on-year. This was GWM's first profit decline since 2020.
GWM reported an automotive selling expense of CNY8.3 billion last year. Its gross profit rate decreased from 19.37% to 18.73%. The company said the increase in EV deployment drove the selling expense growth. GWM sold 256,400 cars in 2023, up 113% from the previous year. It also launched 15 EV models, showing its effort to secure a position in the market.
GWM's gross profit rate decreased by 0.53% year-on-year in 2023. Its gross profit rate in the Chinese market declined by 2% while remaining higher than its overseas performance. GWM was not the only Chinese carmaker to see its profit drop. GAC also reported a 45% decrease in its net profit last year.
Sources said the price competition among Chinese suppliers is heating up. In the past, automotive tier-2 and tier-3 suppliers were not that sensitive to price cuts. Now, they are starting to receive pressure from tier-1 suppliers.
Since production lines have been established, suppliers said they want to maintain their competitiveness and prices. They will also expand applications of their products in response to the competition.
