When the price war cools down, the gap between the rich and the poor widens. What should GAC, which is at the bottom of the list, do?

The automotive market in recent years has not been a good place to survive. Price wars have intensified and broken out from time to time. Some people are struggling to survive, some are "running away", and some are "broken". In this almost "abnormal" competitive environment, everything in the automotive industry is reflected.

Cui Dongshu, secretary-general of the China Passenger Car Association, has made relevant analysis. He said that although the price war in the passenger car market over the years usually increases the promotion intensity by about 4% at the end of the year compared with the same period of the previous year, this year the promotion intensity of new energy vehicle models has increased by 7 percentage points, forming a new normal of price reduction.

We cannot say that this "new normal of price cuts" has no effect on increasing sales. After all, these "price wars" do make the book data of some car companies look "pretty". However, this effect is often short-lived. Behind the drastic price cuts, there are often bigger crises hidden.

Data from the National Bureau of Statistics also confirms this. According to relevant statistics, the profit margins of China's automobile industry in the past three years were 6.1%, 5.7% and 5% respectively, showing a downward trend year by year.

The declining profits year by year mean that the car companies’ ability to “recover” is getting weaker and weaker, and more problems will naturally follow. On the surface, what can be seen are the losses of car companies, the chaos of new car market prices, and the collapse of the used car market... In other words, it is difficult for all participants in this industry chain to get out of it unscathed.

According to the ranking of Chinese brands' per-vehicle profits in the first half of 2024, GAC Group, which ranked last in per-vehicle profits, only made 1,800 yuan per vehicle sold. Changan Automobile, which ranked second from the bottom, only made 300 yuan more per vehicle than GAC Group, which ranked last, even though its sales volume was as high as 1.3341 million.

Zeng Qinghong, Chairman of GAC Group, once "complained" at the 2024 China Automotive Chongqing Forum. He bluntly stated that although price competition is a natural result of market supply and demand and market laws, rationality and bottom line must be maintained. Excessive concessions are unsustainable.

Now it seems that Chairman Zeng Qinghong's words at the time may "reflect" the current situation of his own company. According to the first half financial report released by GAC Group, in the first half of 2024, GAC Group's revenue was 45.808 billion yuan, a year-on-year decrease of 25.62%. The net profit in the first half of the year was 1.516 billion yuan, a year-on-year decrease of 48.88%. The net loss after deducting non-recurring items was 338 million yuan, compared with a profit of 2.7 billion yuan in the same period last year, a year-on-year decrease of 112.51%. This also includes approximately 2.57 billion in R&D investment that has been capitalized.

Simply put, even if part of the R&D investment is calculated as corporate capital, all aspects of GAC Group's first-half financial report data are still declining, with losses instead of profits.

Under the influence of the "price war", GAC Group's gross profit margin has continued to hover at a low level, making it difficult for the company to spend extra money on technology and product research. Statistics show that in the first half of this year, GAC Group's R&D expense rate was 1.5%, ranking last among major A-share listed passenger car companies.

It can be seen that it is not that GAC Group is unwilling to make technological investments, but that after excessively low prices, the company's "blood-making" ability is not strong, and its "blood-recovery" ability is weakened, so it is naturally powerless. If technological investment cannot keep up, the competitiveness of products in the market will inevitably be affected, further affecting sales. In terms of sales, in the first half of 2024, GAC Group achieved automobile sales of more than 860,000 units, a year-on-year decline of 25.79%.

GAC Group is not the only company that has found itself in such a vicious cycle. Facts have proven that the “price war” in the market is crazy, but fundamentally, it is unsustainable. We can see more evidence of this from some Chinese automakers that have already emerged from the “siege” of price wars.

In the ranking of Chinese brand vehicle profits in the first half of 2024, we can also see the obvious "rich-poor gap" between different car companies. On this list, Great Wall Motors and Geely Group have a per-vehicle profit of over 10,000 yuan, and Ideal Auto and BYD have a per-vehicle profit of over 8,000 yuan.

Take Great Wall Motors as an example. According to the third quarter report of 2024 released by Great Wall Motor Co., Ltd., Great Wall Motors' revenue reached 142.254 billion yuan, a year-on-year increase of 19.04%, setting a record high for operating income in the first three quarters. The comprehensive gross profit margin was 20.76%, an increase of 1.92 percentage points year-on-year; net profit was 10.429 billion yuan, a year-on-year increase of 108.70%; net profit attributable to the parent company after deducting non-recurring gains and losses was 8.374 billion yuan, a year-on-year increase of 119.93%, also setting a record high. In terms of sales, in the first three quarters, Great Wall sold 854,000 new cars; sales of new energy vehicles were 211,500, a year-on-year increase of 24.15%.

This semi-annual report card is indeed impressive enough, and the reason behind it is also very intuitive, that is, hard-core R&D investment. Great Wall Motors' R&D investment in 2023 exceeded 11 billion yuan, and this figure remained high in 2024. In the first half of 2024, the company's R&D investment reached 4.185 billion yuan, a year-on-year increase of 19.24%.

Adhering to the principle of "overinvesting in research and development", Great Wall Motors has made more progress in the field of intelligent new energy technology. The technological achievements such as the new generation of intelligent driving system Coffee Pilot Ultra and the smart space system Coffee OS 3 have made Great Wall Motors' products more powerful. Better products can bring higher profits in domestic and foreign markets, and better financial performance can support its continuous improvement of technology and services, and then realize the feedback of technology and services to sales and profits.

The difference between the virtuous cycle brought about by high-quality development and the vicious cycle brought about by the "bloodletting" price war is obvious. The result of the downward movement of the price system is very negative. In order to make up for the losses, the OEMs transfer the pressure to the suppliers, and in order to relieve the pressure, the suppliers can only squeeze the procurement costs of upstream companies. The unsustainability of the price war is also more "concrete" in this comparison.

As some industry insiders said: when all starting points are centered around survival, when all behaviors are becoming short-term and profit-oriented, people no longer have much energy to focus on quality and safety.

For Chinese automakers, knowing that price wars are unsustainable is one thing, but how to change is another. Faced with such a situation, how can Chinese automakers "break the impasse"?

Perhaps this statement by Wei Jianjun, chairman of Great Wall Motors, will be of some inspiration to everyone. He said: "Great Wall Motors is determined not to engage in a 'bloodletting' price war. We have an internal principle that even if we fall out of the top ten, we must insist on taking the right path."

The internal competition in the automotive industry will never end, but the bottom-line price war must be curbed. Of course, the transition from "violent price war" to competition in technology, products, and services will take a long time, but as long as Chinese automakers work together, the competition environment in the entire automotive industry will definitely get better and better. After all, only when the price war begins to "cool down" and the automotive industry environment is healthy and stable, will domestic brands have more opportunities to develop rapidly.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.