National NVE Subsidies End Officially by end-2022, a Call for Price War?

SHANGHAI, Jan 3 (SMM) - 2023 will be a year of changes and potentially subversions for the new energy vehicle industry. According to a series of policies and plans for the development of new energy vehicles set out by the Chinese government, the 2022 new energy vehicle (NEV) subsidy policy has officially ended on December 31, 2022, and vehicles registered after that will no longer enjoy relevant subsidies.

This lavish subsidy has lasted for as long as 13 years. Thirteen years ago, the Auto Industry Adjustment and Revitalisation Plan first proposed to take new energy vehicles as the future development target and initiated the national energy-saving and new energy vehicle demonstration projects that enjoyed national subsidies.

But with the end of 2022, this massive national subsidy has finally come to an end. It is worth mentioning that, as the central government subsidy withdraws near the end of the year, many NEV companies have also announced price adjustments one after another.

After celebrating the first sunrise in 2023, a number of NEV companies that have previously announced price adjustments start to make movements. Some "fulfilled" their previous price hike promises as scheduled, while some started a “price war”.

BYD announced on November 23 that it will hike the prices of Dynasty, Ocean and Denzadue family by 2,000-6,000 yuan due to the decline in subsidies for new energy vehicles and the sharp increase in the prices of core raw materials for batteries in the second half of the year. Customers who pay a deposit before January 1, 2023 will not be affected by this price adjustment. The specific models involved will be announced separately.

On December 31, BYD announced on Weibo that it will "fulfil" its previous promise, saying that it has decided to officially adjust the official guide prices of Dynasty, Ocean and Denza-series starting from January 1, 2023 with a hike of 2,000-6,000 yuan. The new price will take effect at 00:00 on January 1, and customers who paid a deposit before this announcement will be subject to the old pricing.

Unlike BYD, which raised prices as was disclosed earlier, XPeng Motors said on November 30 that it would ensure customers paying deposit by 24:00 on December 31, 2022 enjoy the national subsidies, and the subsidy difference caused by registration time of car plate will be borne by XPeng.

Later, on January 1, 2023, XPeng made another announcement, saying that in order to allow more customers to enjoy the travel experience brought about by smart cars, the retail price of each model of XPeng Motors in 2023 will be maintained at the same level as that by the end of 2022 after counting in comprehensive subsidies.

In addition, Geometry Auto also announced on Weibo on December 21 that Geometry Auto will officially adjust the prices of its product portfolio (including Geometry A Pro, Geometry C, Geometry G6, Geometry M6, and Geometry E) in 2023 by 3,000-6,000 yuan.

On December 22, LIVAN Automobile issued a price adjustment statement stating that due to the expired NEV subsidy policy and the sharp increase in raw material costs, LIVAN Automobile will adjust the price starting from 0:00 on January 1, 2023, with an increase of 5,000-8,000 yuan.

Dongfeng EV announced on December 6 that it decided to increase the official price of some models by 7,000-9,000 yuan without mentioning the timeline.

Nevertheless, there is no doubt that the reasons for the above-mentioned price adjustments are generally "driven by the decline in subsidies for new energy vehicles and the continued sharp rise in the prices of major raw materials such as batteries since 2022". Among them, the prices of raw materials such as batteries have continued to rise sharply, which can also be seen from the SMM Price. According to SMM Price, in 2022, the price of spot battery-grade lithium carbonate showed an overall upward trend, which recorded 512,000 yuan/mt as of December 30, 2022, a surge of 84.17% from 278,000 yuan/mt at the beginning of the year.

Specially, since September and October, due to the pandemic prevention and control in Qinghai province, the delivery of long-term orders and supply in the spot market both dropped, and some customers had to offer higher prices, fuelling the prices of lithium carbonate. The upward trend did not end until November 9, with a peak of 567,500 yuan/mt. Although lithium carbonate price entered the downward channel towards the end of the year, it was still at an all-time high.

Following the removal of NEV subsidies, NEV companies have to find other supports, according to previous SMM comments. That is, apart from cost control amid surging raw material prices, improving competitiveness via differentiated development is a smart path to better position themselves in the NEV industry. Some domestic auto brands have strong control capabilities, and if they blindly lower prices, there may be a risk of sacrificing car performance. It is expected that the NEV players will focus more on niche market.

However, there is no doubt that in the last week of December 2022 when prices are about to increase, many car companies that will adjust prices on January 1, 2023 have ushered in a wave of "order placement". At the same time, there are also companies such as XPeng hoping to stimulate sales by extending the preferential prices.

In addition to new energy vehicles, some fuel vehicle brands are also currently undergoing price adjustments. Industry experts commented that compared with NEV companies, traditional car companies have insufficient confidence in price hike amid contracting demand. And along with the reduction in manufacturing costs of NEVs and the continuous expansion of market scale, the auto industry will not see continuous and significant price hike in 2023.

It is worth mentioning that on January 3, the People's Government of Henan Province just released the Policies and Measures to Vigorously Boost Market Confidence and Promote Economic Stability and Improvement. According to the notice, the subsidy policy will be extended until the end of March 2023, and consumers will be subsidised at 5% of the purchase price of newly purchased cars in the province, with a maximum of 10,000 yuan per vehicle.

Although the national subsidy officially ended at the end of 2022, the policy of "exemption from vehicle purchase tax for new energy vehicles" will continue in 2023. At the same time, some industry players predict that there is still possibility of new stimulus policies in the future. Especially, the central government has repeatedly mentioned matters related to promoting the consumption of new energy vehicles. At the regular press conference of the Ministry of Commerce on December 29, 2022, Shu Jueting, a spokesperson for the Ministry of Commerce, said that they will focus on stabilising automobile consumption, support the purchase and use of new energy vehicles, and accelerate the activation of the second-hand car market.