China electric vehicles manufacturers are in a difficult situation. Margins have been squeezed by increasing raw material costs, with many carmakers increasing their sticker price. The problem of putting the EVs in an expensive basket means risking consumer demand even as the government is looking to spur adoption.
Increased material costs and prices
This problem is not only confined to China alone, and automakers all over the world are experiencing the same issue. China’s position is unique as it simultaneously rolls back Electric vehicle subsidies and tries to balance profit and growth for green cars.
Starting from Tesla Inc. to Li Auto, BYD Co. Peng Inc. and others, each one of them has hiked their prices since March.
Contemporary Amperex Technology Ltd (CATL), the world’s largest battery maker for EVs, were transparent, saying that the surge in raw materials has made them make some dynamic adjustments to some of their product’s prices.
Brian Gu, the President of Xpeng Inc., told Bloomberg TV that they face a challenging environment in China, and the EV industry is facing headwinds in terms of rising costs.
The Covid issues and supply shortage of chips threaten to make it difficult for the targeted sales of 5.5 EVs in China this year.
The Shenzhen-based carmaker BYD, backed by Warren Buffet, missed analysts’ expectations in the results declared last week. The company’s gross margin slipped to 13.3 %. BYD had increased the prices of its EVs twice a year.
Shanghai-based Nio Inc. also highlighted the increase in raw materials cost, volatility in chip supply, and the pandemic issues. It tested increasing the price of its EV and is looking at a gross margin of 18% to 20% this year. CEO William Li said that they would try their best to maintain production and deliveries in the future.
Despite raising its EV price between 10,100 Yuan and 20,000 Yuan by car maker Xpeng, Gu believes that the momentum will remain with the EVs considering that fuel costs for engine cars are also going up. The battery-powered EVs and their technological advantage will have an edge.
Some analysts think that premium EVs will handle the higher costs better than lower-end automakers, such as SAIC-GM-Wuling, whose entry-level model Hongguang Mini costs less than 30,000 Yuan.
Bin Wang, the co-head of auto research in Credit Suisse Group AG, says that EV manufacturers are ready or act if the demand weakens. Some of them are already preparing for price reduction and will likely be rolled out in the second half of the year to help meet the annual target.
Tesla shipped nearly 71,000 EVs from its factory in Shanghai in December and around 116,000 in the first two months of 2022. The demand is expected to be strong, and there are fears about the supply of Lithium for the batteries.
