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Car companies are cutting costs heading into the end of the year.
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A price war in China poses a threat to profitability.
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Bloated inventory leads to production cuts.
It’s been a busy few days for auto companies.
Ford and Volkswagen each pulled back vehicle production plans this week. After the last shift on Friday, November 15, Ford will pause F-150 Lightning production until next year, while VW said it is considering historic plant closures in Germany that would lay off hundreds of workers.
Meanwhile, Tesla fell behind China’s BYD in quarterly revenue for the first time, and GM CEO Mary Barra warned of an unsustainable price war in the Chinese EV market.
Amid the flurry of news, two themes stand out: the China threat and EV slowdown loom large for automakers.
Another EV price war threatens profitability
In China, the world’s largest auto market, EV leaders BYD and Tesla are engaged in a bitter price war that initially weighed heavily on BYD’s bottom line.
But by August, BYD (which also sells hybrid cars) reported its best-ever passenger car sales, driving up revenue 24% in the third quarter to $28.24 billion, topping Tesla for the first time. It’s the latest sign that after nearly two years of deflating the value of its cars, Tesla is finally starting to feel the pinch of a slowdown in the EV market.
The Chinese EV market is more competitive than ever, according the GM’s Barra, who questioned the sustainability of a broader price war in the region driven by an uptick in Chinese EV startups selling inexpensive vehicles.
Inexpensive Chinese EVs have long threatened the US EV market. They aren’t just well-priced; many are also good-looking and well-equipped. Ford CEO Mark Ford said last week that he’s been driving the Chinese-made Xiaomi SU7 for six months and doesn’t want to give it up.
Some car companies already sell China-built EVs in the US, but Biden Administration bans on Chinese vehicles keep competitors like BYD from entering the market. Europe is also slapping tariffs on Chinese EVs as these cars upend their retail market.
Companies will have to build fewer cars for now
As Volkswagen loses ground to BYD in Europe, the automotive giant is considering massive production pull-backs, including closing three German factories for the first time in its history.
In the US, Ford announced its own EV production pull-backs this week, stopping assembly of its electric F-150 Lightning pickup truck until next year in a bid to improve profitability for its money-losing EV segment.
Both companies are coupling these production rationalizations with other cost-cutting measures. At Ford, managerial bonuses tied to quality and manufacturing costs will be slashed to 65% of last year’s levels. VW has said it plans to lay off workers and may cut wages.
Over-production isn’t just a problem for EVs, though.
Overall vehicle inventory levels remained elevated at the end of October, driving up manufacturer-funded discounts, according to JD Power. Dealers ended October with about 2 million units in stock, a 4% increase from September and a 25% increase from the previous year.
Some companies are more affected by inventory bloat than others. Stellantis, which is navigating the toughest year in its short history, is specifically focused on reducing inventory levels in the US, and reported some progress on that effort in the third quarter.
Read the original article on Business Insider
