The Dongfeng Citroën C6, which triggered a wave of price cuts in the car market, has quietly withdrawn from the market, yet the price war continues. In this battle with no visible end, the elimination round is intensifying, and the joint venture car companies are facing a major test. Facing the world's largest single market in terms of sales volume, although no car company is willing to give up easily, for foreign brands, there is still no reason to fight to the end at all costs in the price war. "It's clear that this does not conform to business logic. Especially for the foreign partners in joint venture car companies, the Chinese market is certainly important, but when the profit margin is severely squeezed, they will inevitably re-evaluate the necessity of continued investment. After all, China is neither the only sales market for these automotive groups, nor the market with the highest revenue share. For the Chinese side, the position is different, and the pressure is naturally greater," said Liu Huan, a senior executive at a mainstream joint venture car company, who frankly admitted that for the first time in his company, he felt a clear divergence between the Chinese and foreign sides. In fact, this is also one of the reasons why joint venture car companies are hard to compete with BYD in the price war. Whether they can reconcile the different interests and continue to move forward in unison and actively break the deadlock has become a prerequisite for a joint venture car company to continue to cultivate the Chinese market. "It can be seen that, whether it is joint venture brands or foreign brands, the car companies that are currently more active in expanding in China are mainly Japanese and German companies," said Ying Chongxi, an analyst of Nomura China's automotive and parts, technology, and telecommunications industry, whose views are consistent with the industry. According to public data from the Passenger Car Association, from January to June 2024, the market share of German and Japanese brands was 19.4% and 14.9%, respectively. Although it still declined compared to the overall performance in 2023, it still has opportunities compared to the French, Korean, and American brands that fell behind earlier. It should be noted that even if the new car sales of these three brands are added together, the market share remains in the single digits. In the first half of this year, the sales of French cars were only 28,500 units. This represents the total sales volume of all models on sale under the Dongfeng Citroën and Dongfeng Peugeot brands of the Shenlong Automobile Company in the past six months, and this number is comparable to the monthly sales volume of a single model of BYD Yuan Plus. The year-on-year decline of Korean cars still remains above 18%. A person in charge of Kia China has previously stated publicly that they will wait until Chinese car companies "can't roll" anymore, and then they will use their substantial financial strength to regain the market. Regardless of whether the Chinese market will still need a Kia at that time, this is enough to show that they have given up on efforts. In stark contrast, the reason why Toyota in the north and south is gritting their teeth to follow the price war and stabilizing the dealer system with huge subsidies is that they are afraid of losing market share like Korean cars, "This is disastrous, and no one can afford it." A senior executive of a Japanese car company said bluntly. The deeper concern behind all this is whether Chinese users still need so many car manufacturers under the transformation of the new energy vehicle industry?
At least hold on for these 3 years.
In the summer of 2016, at the 7th Global Automotive Forum, Wang Xia, the chairman of the Automobile Industry Branch of the China Council for the Promotion of International Trade, had a premonition that the changes in the automotive industry in the next 10 years may exceed the past 50 years. Perhaps this judgment was a bit exaggerated at the time, but now it seems to be spot on. At least from the perspective of changes in China's industrial structure, 2026 will be an important milestone.
From this year to 2026, its two joint ventures in China and Lexus China will have certain financial support, including the profits that need to be handed over to the Japanese side every year according to the agreement, which will also be retained in their hands during these three years. The purpose is to cope with the price war in the Chinese market, stabilize the dealer system, and the impact brought by the transformation of new energy vehicles. "This is the support that has been fought for after multiple communications between the Japanese side in China and Toyota headquarters. As for why it is 3 years, not 5 years or 10 years? The answer is not complicated. First, in 2026, Toyota will make breakthroughs in the core technologies of new energy vehicles, including four types of new generation batteries: performance lithium-ion batteries, popular lithium iron phosphate batteries, high-performance lithium-ion batteries, and all-solid-state batteries, which are planned to be put into the market in turn from this year; second, for Toyota, the decision-making risk for a 5-year period is too great, and they need to consider whether it is worth sacrificing long-term profits to stabilize the Chinese market. After all, increasing investment in markets with faster growth rates is in line with basic business logic." A Toyota person explained to us.
Previously, Toyota Motor Corporation expected its sales revenue for the fiscal year 2025 to be 46 trillion yen (approximately 222.19 billion yuan), a year-on-year increase of 2.0%; operating profit was 4.3 trillion yen (approximately 20.77 billion yuan), a year-on-year decrease of 19.7%; net profit attributable to Toyota Motor Corporation was 3.57 trillion yen (approximately 17.24 billion yuan). Compared with Toyota's caution, Volkswagen is more confident about its future development prospects in China. According to public data calculated from October 2022 to now, the total investment of the Volkswagen Group in China has approached 50 billion yuan, and the scope of cooperation continues to expand, including cooperation with Horizon Robotics and XPeng Motors, and continued investment in Kames to establish the Hefei Intelligent Connected Vehicle Center, etc. In July this year, the first pure electric model ID. of Volkswagen Anhui was officially launched, and in 2026, it will usher in a product year, concentrating on the release of 4 intelligent pure electric models, including the first model based on the electronic and electrical architecture jointly developed with XPeng Motors. In addition, in terms of cooperation with the old partner SAIC Group, Volkswagen's attitude is also very clear. At the end of June, the Volkswagen Group, SAIC Group, Volkswagen (China) Investment Co., Ltd., Volkswagen (China) Technology Co., Ltd., and SAIC Volkswagen signed several technical cooperation agreements on new product projects of SAIC Volkswagen in Shanghai. The content includes technical cooperation agreements for the development of 3 plug-in hybrid models and 2 pure electric models in China. It is expected that from 2026, they will be introduced to the market one after another.Ultimate Capacity Optimization
The joint ventures with FAW and SAIC have allowed the Volkswagen brand to accumulate 50 million users in China, a foundation that indeed gives Volkswagen more confidence to continue its journey in China. Nevertheless, the combined 5 million vehicle production capacity designed by the two joint ventures also faces the challenge of optimization against the backdrop of declining sales. Industry insiders have revealed that the personnel optimization at FAW-Volkswagen's Foshan factory was just the beginning, and a broader range of adjustments, including those at SAIC Volkswagen, may be initiated within the year. In contrast, GAC Honda and Dongfeng Honda, which decided to align with Honda and accelerate their transition to electrification after their dream of achieving annual sales of one million vehicles shattered five years ago, have made a decision. On July 26th, Honda China stated that GAC Honda will close its fourth production line with an annual capacity of 50,000 vehicles in October 2024; Dongfeng Honda plans to suspend operations of its second production line with an annual capacity of 240,000 vehicles in November 2024. After this round of adjustments, Honda's seven automobile production lines in China, with a combined annual capacity of 1.49 million vehicles, will be optimized to five production lines with a total annual capacity of 1.2 million vehicles. Correspondingly, the new electric vehicle-specific factory for Dongfeng Honda is scheduled to commence production in September 2024, and the new energy factory for GAC Honda will start production in November 2024. This move is speculated by the industry to be paving the way for the new electric brand "Ye" launched by Honda China in April this year, specifically for the Chinese market. As planned, the new brand will be built on the new intelligent and efficient pure electric "W" architecture, with the first models Ye S7 and Ye P7 to be launched at the end of this year. In the Chinese new energy vehicle market, which is crowded with competitors, it remains to be seen whether Honda can boost its sales in China with the "Ye" brand. Toyota, which already has pure electric models in China, has indeed failed to break through as desired. For instance, the bZ4X only achieved a cumulative sales volume of 59 units in the first half of this year. Even the bZ3, which is the best-performing model in the current bZ series and has achieved a historical best of 24,079 units in the first half of the year in cooperation with BYD, has done so at the expense of cost. From a supply chain perspective, Ying Chongxi pointed out that although Japanese companies have cooperated with Chinese automobile brands to launch pure electric models, which may include some elements of the Chinese industry chain, and there may even be deeper cooperation in the future, the industry has not yet seen any concrete results.
Remodeling the Image from the Supply Chain
"Of course, from a trend perspective, both Japanese and German companies are willing to explore more with the industry chain, and how to reshape their own corporate image in China, while launching products that align with the evolutionary trends of the Chinese automobile market, as well as the preferences and values of Chinese consumers, is the core that determines whether joint ventures can continue to develop in China," said Ying Chongxi. In Ying's view, these are far more important than the distribution of joint venture equity ratios that the outside world is concerned with. He believes that the main reason why Chinese brands have achieved their current performance and made significant inroads into the high-end market, continuously encroaching on the shares of joint ventures, is that Chinese car companies have moved faster and more resolutely on the path of new energy and intelligence. Therefore, for joint ventures, expanding and strengthening cooperation with Chinese car companies and Chinese industry chain enterprises may be their true way out. After all, from a competitive standpoint, the first thing joint ventures need to ensure is that their products are attractive. As new energy vehicles enter a period of explosive growth, with penetration rates rising steadily and price wars intensifying, joint ventures are facing increasingly difficult situations in the Chinese market, including in the market segment above 200,000 yuan, where they find it hard to compete head-to-head with a few leading new energy vehicle companies in China. Although the localization rate is already high, core component suppliers are still controlled by foreign capital, which also determines that joint ventures cannot compete with domestic brands in product pricing. "Liu Huan frankly stated that there are two reasons: first, foreign brands have very strict quality requirements for the supply chain, resulting in higher costs; second, in their view, sacrificing the profits of the entire industry chain for a single market is not worth it, and it's not necessary. Ying Chongxi also believes that there is a cyclical relationship between reducing prices to increase volume and pressing inventory, and the risk is always there, so some car manufacturers have started to actively seek optimization and production reduction, but in the end, this is a helpless and passive choice. From a proactive perspective, there is another possibility, which is that joint ventures or foreign car companies choose to cooperate with Chinese suppliers in the industry chain to see if there is an opportunity to reshape their brand through a truly localized industry chain, coupled with the launch of more new products with Chinese characteristics and from a Chinese technical perspective, to win back the Chinese market. "As for the traditional route of joint ventures, including the use of their own supporting components and technology, from the perspective of fuel vehicles, it is indeed very difficult to go on in the current Chinese market," said Ying Chongxi. It is undeniable that the development of intelligence will have a profound impact on the entire automotive industry. When looking at the Chinese automobile market, it is no longer possible to use the old perspective. As more and more players such as OEMs, new car manufacturers, and technology companies enter this field, it is still unknown who will redefine the car, but referring to the mobile phone industry, when the electronic attributes of vehicles become stronger and stronger, can the market still accommodate so many car brands?It seems like you've provided some non-text characters or placeholders ( ) that don't contain any actual text to translate. Please provide the text you'd like translated into English, and I'll be happy to assist you.
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