MICROECONOMICS REPORT Page 1 of 6
CASE STUDY
Title: A brutal elimination round is reshaping the world’s biggest market for electric cars
Hong Kong CNN — A “life and death race” has begun to unfold in the world’s largest market for
electric vehicles (EV).
Chinese EV makers showing off their newest models at Auto China, which kicks off in Beijing on
Thursday, have enjoyed generous support from the government for years, with some growing
rapidly to become global players. BYD, for example, is now vying with Tesla for leadership of the
battery electric vehicle market.
But all of the country’s more than 200 EV manufacturers are now grappling with huge oversupply,
and experts predict many smaller companies will not survive the fiercely-competitive
environment.
From a brutal price war to slowing sales in a weakening economy, the challenges unfolding in
China have also forced some global automakers to retreat. And, it doesn’t help that the enthusiasm
for EVs is waning in other markets around the world.
“China’s EV industry is only going to go from strength to strength as a whole, but not every player
today will see the finish line,” said Mark Rainford, an automotive industry commentator based in
Shanghai who hosts the YouTube channel “Inside China Auto.”
Even Chinese officials have said that carmakers will need a cast iron stomach to pull through the
next few months.
“Competition in the new energy vehicle (NEV) industry will be extremely fierce in 2024,” the
National Development and Reform Commission (NDRC), the country’s top economic planner,
said on Monday.
More than a dozen passenger carmakers disappeared from the market last year, according to
statistics from the China Passenger Car Association. These include once-popular EV brands, such
as WM Motor, Byton, Aiways, and Levdeo.
Some global automakers have also had to restructure their businesses or shut down operations. In
October, Mitsubishi Motors announced it would end production of its cars at its joint venture in
China. Honda (HMC), Hyundai and Ford (F) have also taken steps, including layoffs and factory
sales, to cut costs, according to stock exchange filings and state media reports.
By 2030, China could have fewer than five major EV players, Richard Yu, CEO of Huawei’s
consumer business division, predicted last June. Huawei has formed partnerships with several
automakers to produce EVs.
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So what makes the industry so difficult for both local and foreign players, and what’s ahead for
EV makers in the world’s second largest economy?
A bruising price war
Aggressive price cuts are a major headache.
The price war kicked off in October 2022, when Tesla (TSLA) slashed prices for its Model 3 and
Model Y cars in China by as much as 9%. Three months later, it discounted its cars again,
triggering a wave of price cuts that engulfed the country’s auto industry in 2023, including gasoline
car producers.
The pressure just became even more intense.
Just this week, Tesla once again cut the starting prices of four models sold in mainland China, its
largest overseas market, by 14,000 yuan ($1,932). Xpeng and Li Auto, China’s fastest growing car
brands, immediately followed suit, offering steep discounts or tens of millions of dollars in
subsidies to attract buyers.
“The price war is likely to rage on further into this year, though it’s hard to imagine prices can
come down much further than they already have,” said Rainford.
The deals available to Chinese car buyers are now very attractive, but some brands will not be able
to sustain these discounts forever, he said.
“They’re going to need deep pockets and smart marketing to take enough business,” he added.
The price cuts have squeezed profitability. In 2023, the average profit margin for China’s auto
industry slid to 5%, the lowest level in at least a decade, according to data from the China
Association of Auto Manufacturers (CAAM).
Too many players
Overcrowding is another major issue plaguing China’s EV industry.
The NDRC expects more than 110 new NEV models to be launched this year, adding to a flood of
EVs hitting the market.
For 2024, BYD, Huawei’s Aito and Li Auto alone are planning to increase deliveries by 2.3 million
vehicles, the NDRC said. But the total market demand is forecast to increase by only 2.1 million
cars.
“The market will be in a state of oversupply for a long time,” it added.
MICROECONOMICS REPORT Page 3 of 6
And now, more companies are joining the overcrowded field.
Last month, Xiaomi, a Chinese smartphone brand, launched its electric car, the SU7 sedan. CEO
Lei Jun said he wants to take on Tesla and Porsche with the new premium car that comes with a
starting price of just 215,900 yuan ($29,794).
Last November, Meizu, another smartphone maker, announced it would partner with Geely Auto
and launch its first EV, Meizu DreamCar MX, in 2024.
The same month, Huawei launched its first electric sedan, the Luxeed S7, co-developed with
Chery Auto with a view to taking on Tesla’s Model S.
The CAAM has forecast the country’s total passenger cars sales will be around 26.8 million
vehicles for 2024. But the combined sales targets by major manufacturers have so far reached
nearly 30 million units.
That oversupply means companies need to speed up sales, including by boosting exports — at the
risk of raising tensions with key trading partners. Failure to do so may cause cash flow problems
and plunge the manufacturers into crisis.
And the battle may get harder for foreign players.
Tesla was briefly dethroned by BYD as the world’s bestselling EV brand in the fourth quarter of
last year. BYD’s entry-level model sells in China for the equivalent of just below $10,000. In
contrast, Tesla’s Model 3, its cheapest model, currently costs at least 231,900 yuan ($32,002) after
the latest price cut.
“The quality of the products now, combined with the unparalleled levels of automation and
innovation going into Chinese cars, means it’s the traditional foreign players who will be feeling
the pressure rising as more Chinese brands display their wares in international markets,” Rainford
said.
The knockout round
As competition becomes more intense, many carmakers will perish in the coming months,
according to China’s EV company CEOs.
“Entering 2024, the knockout round of China’s auto industry will begin in an all-round way, and
the industry will enter a period of consolidation, with a complete reshuffle,” said Gan Jiayue, chief
executive officer of Geely Auto, at the company’s earnings conference in March.
Wang Chuanfu, chairman of BYD, also predicted in March that a “brutal elimination round” is
coming.
MICROECONOMICS REPORT Page 4 of 6
“China’s EV industry has entered a stage of cyclical adjustment after two decades of growth,” he
said at a forum in Beijing. “Companies must form economies of scale and brand advantages as
soon as possible.”
Further consolidation of the industry means more small-to-medium-sized companies could be
wiped out, industry insiders predict.
According to Yin Tongyue, chairman of Chery Auto, EV makers are entering a “life and death
race.” He added last month that his company would roll out 39 new pure electric and hybrid models
in 2024 and 2025 to gain a top position in the EV market.
But for those that survive, the future isn’t entirely bleak.
In 2024, the market share of electric cars could reach up to 45% in China, underpinned by
competition among manufacturers, falling battery and car prices and ongoing policy
support, according to the International Energy Agency.
Source: Laura He,(2024). CNN. A brutal elimination round is reshaping the world’s biggest
market for electric cars.
[Link]
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REQUIREMENTS
1. Write an introduction on the topic of the electric car industry. (Free word counts)
2. Study the trends of the electric cars from 2018 to 2023. (400 words)
3. Discuss the issue of intense competition in the electric car industry. (550 words)
4. Discuss the demand and supply factors in the electric car industry. (800 words)
Paragraphing = 1st demand factor à 2nd demand factor à 1st supply factor à 2nd supply factor
Elaborate !!
5. Write a concluding remark on the topic. (Free word counts)
DELIVERABLES
1. Report length should be approximately 1,500 to 1750 words; any part(s) of the answer
exceeding the world limit will be disregarded. (accept till 1925 words)
MICROECONOMICS REPORT Page 5 of 6
2. You should have a minimum of 10 academic references to substantiate your research and
report writing.
3. You are REQUIRED to use proper referencing methods for this assignment – APA
Systems of referencing.
4. Report should be well structured and the use of proper headings for topic separation is
encouraged.
5. Your report must adhere to standard documentation standards:
Font : Times New Roman
Font Size : 12
Spacing : 1.5
6. Please state your word count at the end of your report.
Performance Criteria
Marks will be awarded for:-
No. Criteria Marks
1. Economic Reasoning and Research 40%
2. Analysis and Evaluation 50%
3. References and Structure of the report 10%
TOTAL 100%
Marks are awarded based on the following guidelines
Grade Assessment/Guidelines
0 – 40% Superficial analysis, concepts and language of the subject are absent or scant.
Irrelevant regurgitation of text book. Ideas are poorly expressed. Many key issues
are ignored. Concepts and language of the subject are used but are often confused
in application and or explanation.
MICROECONOMICS REPORT Page 6 of 6
41 – 49% Superficial analysis, concepts and language of the subject are absent or minimal.
Few learning outcomes have been met. Irrelevant regurgitation of text book. Ideas
are poorly expressed. Many key issues are ignored. Concepts and language of the
subject are used but are often confused in application and or explanation.
50 - 54% Some understanding of the relevant models and concepts. Some elements of an
appropriate structure are present. Restricted analysis of some issues.
55 – 64% Evidence of some reading and research. Incorrect referencing although it is evident.
Some elements of an appropriate structure are present. Key issues are analysed but
not done thoroughly. Key issues are identified and analysed, although this may be
restricted at times. Some source are acknowledged.
65 – 69% Evidence of reading and research. Understanding of the application of appropriate
models and concepts is demonstrated, but not thoroughly. Key issues are identified
and analysed, although this may be restricted at times. Some sources are
acknowledged.
70 – 74% Evidence of reading and research. Understanding of the application of appropriate
models and concepts is demonstrated. Key issues are identified and analysed,
although this may not be consistent. References are acknowledged.
75 – 79% Evidence of wider reading. The assignment effectively interprets the information
and exhibits the integration of ideas across the subject area. The assignment has
credible recommendations. A systematic approach to development and evaluation
is used. Most sources are acknowledged and referenced using Harvard Name
System of Referencing.
80%+ All criteria met.