A technician works at a research lab of BYD Co. in Shenzhen, south China's Guangdong Province, Nov. 22, 2016. BYD, China's leading new-energy vehicle manufacturer, is also the world's largest manufacturer of rechargeable batteries. (Xinhua/Li Mingfang)
BEIJING, March 17 (Xinhua) -- When raw materials kept rising on and on, new energy vehicle (NEV) makers in China found it hard to strike a balance between maintaining output of certain models and sustaining profitability given the largely squeezed profit margin.
With costs up noticeably, some NEV producers have stopped temporarily accepting orders for part of their low-end models for the already narrow profit margin or even lower-than-costs sale prices.
In a 4s auto shop in Beijing, a young consumer frowned on having either to wait for a long time for a desired model or to give up as prices of many previously affordable models have been raised recently.
-- Producers need to subtly maximize profitability amid rising costs
Since the start of March, nearly 20 NEV makers in China have announced price hikes of several thousand yuan to over 10,000 yuan, involving approximately 40 models. For instance, prices of Tesla Model 3 high performance version and Model Y long range and high performance version all increased by 10,000 yuan.
As a matter of fact, the gradual cuts of NEV subsidies in China have brought large pressures to NEV producers at the beginning of this year, noted a sales manager of BYD company, a famous Chinese NEV maker.
Together with the recently accelerated rise of raw materials prices, production costs of NEV makers were directly drove up especially when the first quarter is usually a quarter with weak sales, said the sales manager.
Under such circumstances, NEV producers broadly faced notable profit pressures and had to raise prices to offset the surging costs, the sales manager added.
Even if many NEV producers managed to ease impacts from decreasing subsidies at the start of 2022, they could not continue to keep the previous prices unchanged recently.
As a saleswoman of GAC Aion New Energy Automobile Co., Ltd., a NEV unit of GAC Group introduced, the company recently adjusted up the prices of certain models alongside the rising raw material prices.
Generally, battery, motor and electronic control systems are the three key systems accounting for 55-60 percent of costs of a NEV. Since 2021, prices of core raw materials for NEV batteries such as cobalt and nickel have surged rapidly, with the prices of lithium chlorate having exceeded 500,000 yuan per tonne, up significantly from the start of 2021.
As market demand for NEVs continued to grow fast in China, the increasingly fierce competition require producers to well deal with the price raising as it would result in improved profitability and weaker demand at the same time, according to Hongta Securities.
-- Multiple measures taken by NEV makers to bet on long-term opportunity
Despite the recent price rises and order accepting suspension of part of the low-end NEVs, the burgeoning NEV market in China has not been significantly affected.
Statistics with China Association of Automobile Manufacturers (CAAM) showed that NEV output and sales reached 452,000 units and 431,000 units in January, up 133.2 percent and 135.8 percent year on year. In February, NEV output and sales grew 197.5 percent and 184.3 percent year on year to 368,000 units and 334,000 units.
Chart I: Output of NEVs in Jan.-Feb., 2022
Data source: CAAM
Chart II: Sales of NEVs in Jan.-Feb., 2022
Data source: CAAM
Taking the NEV industry giant BYD as an example, its NEV sales in February skyrocketed 752.56 percent year on year to 88,283 units.
But the trimmed profit margin did cause some pressures for NEV makers. A survey showed that many producers are busy adjusting their production structure and spare production capacity for low-end NEVs with thin profit margin for their mid- to high-end vehicles. Others resorted to deployment in power battery and lithium mine sectors to reduce costs while ensuring supply.
Several producers such as Great Wall Motor and GAC Aion New Energy Automobile cranked up their efforts in power battery field. On March 10, GAC Aion New Energy Automobile kicked off construction of a trial production line for self-developed power batteries. Covering an area of about 10,500 square meters, the project includes the complete battery production process and laboratories for material R&D, physical and chemical testing, electrical properties, etc.
For power battery giant BYD, it turned its eyes to lithium mines. Previously in January, BYD was reported to have been awarded a contract to extract up to 80,000 tonnes of metallic lithium. BYD won the contract with an offer of 61 million U.S. dollars. BYD also possessed certain equities in Zabuye salt lake, one of the top three lithium salt lakes around the world, showed public data.
Under such circumstances, heads of many auto firms suggest prolonging the subsidy period, granting more tax and financial supports for NEVs to help producers combat the current difficulties.
At present, the NEV market in China stays still in a stage of fast expansion and compared with the immediate profit, a majority of automakers preferred to guarantee their market share even if this resulted in sacrificing profits, a head of an automaker said.
Industry insiders forecast that market share of mid- and high-end vehicles is likely to gradually increase in China's NEV market in the future.
Cui Dongshu, secretary general of China Passenger Car Association predicated that in 2022, growth of NEV market in China is expected to be mainly reflected in the A-class and B-class vehicles market, represented by producers such as BYD. A-class means a car that is a small size hatchback or compact and the B-class defines a car that is larger than A-class, referring to a subcompact executive car with a bigger body and engine than A-class. (Edited by Duan Jing with Xinhua Silk Road, duanjing@xinhua.org)
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