The profit of domestic brands is too low. Changan Deep Blue CEO warns: some brands will not survive next year

The "involution" in the automobile market is becoming increasingly crazy, and the disadvantages brought by price wars are becoming more and more obvious. Although 2024 has not yet passed, many car companies have expressed concerns about the future competition in the automobile industry.

Recently, Deng Chenghao, Vice President of Changan Automobile and CEO of DeepBlue Automobile, said in an interview with relevant media: "Price wars and subsidy policies will have a certain overdraft effect, so I think the price war will not stop in the market next year, and it is likely to be more intense. In such a situation, it will be very dangerous if the company loses its basic health. Auto companies need a gross profit of 15% to survive. If a car company's gross profit is lower than this level, it means that it will lose money on every car sold, and it is very likely that it will not survive."

Deng Chenghao's concerns are not without reason.

Data released by the China Automobile Dealers Association showed that in the first three quarters of this year, my country's automobile industry achieved a total revenue of 735.93 billion yuan, a slight increase of 3 percentage points over the same period last year; however, profits were under slight pressure, falling 1.2% year-on-year to 336 billion yuan.

Behind the glamorous revenue is the challenge of profitability. All of this is related to the current fierce market competition and the endless "price war" under this competitive background. From January to September this year, the scale of price reductions for passenger cars nationwide has reached 195 models, exceeding the 150 models in the whole year of 2023 and 95 models in 2022.

After the price cut, profits will naturally be compressed. From 2017 to 2022, the profit per vehicle in the domestic automobile industry remained above 20,000 yuan, and fell to 17,000 yuan in 2023. In the first nine months of this year, the profit per vehicle in the domestic automobile industry has dropped to 16,000 yuan, of which only 11,000 yuan in September.

Judging from the Chinese brand per-vehicle profit rankings in the first half of 2024, even Great Wall Motors, which has the highest per-vehicle profit among Chinese brands, has a per-vehicle profit of only 12,800 yuan.

Some Chinese brands have good sales, but their profits per vehicle are still low. For example, Ideal Auto, which ranks third on the list, only makes 9,000 yuan per vehicle.

This is indeed incomparable to many joint venture brands. Take Tesla for example, its third quarter financial report for 2024 shows that Tesla's overall gross profit margin is as high as 19.8%; the third quarter operating income was US$25.182 billion, an increase of 8% year-on-year; net profit was approximately US$2.167 billion, an increase of 17% year-on-year. The difference is obvious when comparing the two.

The huge pressure of single-bike profits has long been passed on to many mainstream independent brands. Yu Chengdong once said that he was "selling cars at a loss."

The starting price of the new M7 Pro is 249,800 yuan, and Yu Chengdong said that selling a car with the lowest configuration would result in a loss of 30,000 yuan; the starting price of the Zhijie R7 is 259,800 yuan, and Yu Chengdong also said that selling a car would result in a loss of about 30,000 yuan.

Xiaomi Motors, a new player in the market, is also unable to avoid the current situation of selling cars at a loss. It is said that Xiaomi Motors lost 1.8 billion yuan in the second quarter, which means it lost more than 60,000 yuan for each Xiaomi SU7 sold. Polestar Motors lost 270,000 yuan for each car sold in the first quarter of this year.

All the current situations show that what Deng Chenghao said is true. Car manufacturers lose money on every car sold, and the future pressure on them is visible to the naked eye.

Of course, the "price war" is not without benefits. It can play a certain regulatory role without excessive price competition. As Deng Chenghao said: Behind the price war is also a process of good money driving out bad money. In the next few years, some brands will be eliminated. Only after they are eliminated will there be a chance for value to return and return to a relatively reasonable market order. However, price competition will not end until a large number of new brands are eliminated.

Objectively speaking, this situation is contradictory. Fierce price wars have led to lower and lower profits, and corporate profits have not reached the average level, which has greatly affected the health of enterprises. At the same time, the price war is a protracted war that will not end in a short period of time, posing a great threat to the survival of car companies. In the face of the current situation, perhaps it is more important to seek a better solution and balance quality and cost.

Deng Chenghao also believes that if the market weakens in the first half of next year, companies that have just completed capacity expansion and large companies that have pricing power will engage in a price war. A "seven-injury punch" will make the market even more difficult, so plans and preparations must be made early.

Based on this background, DeepBlue redesigned the company's organizational structure, allowing more teams with different capabilities to join the product team to achieve product specialization. It even dismantled a level of the company. Basically, employees can reach the top in three steps, which makes the team more collaborative and flatter, and the entire organization will be more agile.

In fact, facing the upcoming Chinese automobile market in 2025, every car manufacturer will be faced with overwhelming profit pressure. How to strike a balance between cost, pricing, products and profits will be a "must-test question" for every brand to mature.