Automakers see margins, profits squeezed by brutal price war

The price war and ballooning investment in the transition to EVs ate into growth. Of the 10 companies that turned a profit in the quarter, only three posted an increase. That’s down from four in 2022, and all of them in 2021. Again, BYD was an outlier, posting a 410 percent surge in earnings, while Changan Automobile’s profit rose 54 percent.

The dilemma facing all legacy carmakers, not just Chinese ones, is that gasoline cars currently generate more profit and better margins. By selling a increasing number of electric cars, they’re actually making less money, according to Lee.

“But if they want to survive, they have to embrace EVs otherwise they’ll disappear,” he said. “So they have to choose. Worldwide, traditional car companies want to have more EV sales, but profitability will be worse.”

Changan’s profits rose 54 percent, largely due to a 5 billion yuan ($722 million) windfall from a merger with partially owned EV brand Shenlan. Not counting that and other extraordinary gains, the company’s net income last quarter declined 35 percent compared to 2022.   

Despite the hit, the Chongqing-headquartered company may show a way forward for legacy carmakers. It’s gaining market share steadily, rising to the third best-selling car brand in China for April, according to data from country’s Passenger Car Association out Tuesday. It’s also the first Chinese legacy auto company to set a deadline for phasing out gasoline cars by 2025.

The firm has focused on developing its own models and launched popular EVs such as the Lumin, the seventh-best selling electric sedan in the first quarter, and the SL03, which came in ninth. Its gross margin was 18.6 percent, close to Tesla’s 1 percent. Unlike Dongfeng and SAIC, 85 percent of Changan’s sales and profits come from proprietary brands.
BAIC Motor Corp.’s industry-leading 26 percent margin comes from selling luxury Mercedes-Benz Group vehicles, which accounted for 98 percent of revenue in 2022.