Introduction

With national subsidies and factory promotions, is now the time to buy?

After experiencing a promising start and an industry downturn towards the end of the year, followed by the introduction of national and local subsidy policies in the second half, the auto market in 2024 closed on a high note. However, this optimism seems unable to erase the concerns of the industry and automakers about the 2025 market.

Given the past overspending caused by significant national and local subsidies, and the subsequent sluggish market after subsidy reductions, it is unclear whether these subsidies will continue after the Chinese New Year. Automakers have already grown restless and are funding price reductions and promotions on their own, hoping to create a prosperous start to the year.

Starting from the end of December, BYD and Tesla set the tone for the 2025 auto market by initiating price reductions. Subsequently, as major automakers announced their 2024 annual performance results, they also introduced various price reduction promotions.

According to incomplete statistics from our community, over 30 automakers or brands have joined this fierce competition, offering limited-time discounts, cash bonuses, trade-in subsidies, national and local subsidy policies, and various other benefits. Discounts range from thousands to tens of thousands of yuan, with some luxury cars even seeing price drops of nearly 200,000 yuan. More automakers may join the price promotions, and the intensity is expected to continue increasing.

The introduction of various policies aims to meet consumers' purchasing needs during the policy transition period. According to Cui Dongshu, Secretary-General of the China Passenger Car Association, local policies encouraging consumption will continue uninterrupted, and the policy extension period before the 2025 Chinese New Year is the best time to purchase a car.

It seems that for those who haven't bought a car yet, now is the time to do so.

The battle begins as soon as the year starts, with over 30 automakers entering the fray

It seems that every holiday, new year, or Spring Festival eve is no exception for price reductions and promotions in the auto market. However, compared to the past, when promotions were relatively minor, in the thousands of yuan, this year's promotional efforts seem significant. Especially as both national and local trade-in subsidies expired on December 31, 2024, many automakers have begun self-funding "continued subsidies" for consumers to actively address the impact of subsidy reductions and stabilize January car sales.

According to incomplete statistics from the Auto Community, at least 11 domestic brands, 11 new force brands, and 8 joint venture or luxury brands, totaling at least 30 automakers and brands, have announced price reduction and promotion policies.

Looking at various segments, domestic brands have responded the fastest and have the broadest follow-up. Among them, both domestic automakers and new force brands place great importance on promotions. In terms of discount amounts, trade-in subsidies, insurance subsidies, and cash bonuses are commonly used methods. Except for Wuling, which offers a maximum discount of only 6,000 yuan, most automakers offer discounts in the tens of thousands of yuan.

Among them, BYD's introduction of a highly competitive price of 99,800 yuan, along with insurance gifts and trade-in subsidies, has set the benchmark for price reductions in the domestic or new energy vehicle market. Geely's maximum 30,000 yuan trade-in bonus is relatively high among domestic brands, and its 2.5 billion yuan gift package also makes a strong impression.

Jiedu offers up to 40,000 yuan for trade-ins and up to 30,000 yuan for homecoming subsidies, which is quite aggressive. Of course, there are also brands like Dongfeng Yipai and MG that enhance the added value of their models by offering basic maintenance, warranty, and other service policies to promote consumer purchases from various aspects.

The new force camp, striving to survive, has higher expectations for the effects of subsidies. ARCFOX, with subsidies of up to 58,000 yuan, and AITO, with gift packages of up to 44,000 yuan, rank high in comprehensive subsidies, and virtually all automakers offer subsidies of over 10,000 yuan.

Tesla, XPeng, ZEEKR, Leaping Auto, IM Motors, and other automakers have launched cash discounts or red envelope activities, allowing consumers to see tangible price reductions. Meanwhile, interest-free or 3-5 year 0% interest activities are indeed quite tempting for young people accustomed to credit installment payments.

Of course, there are also brands like Lixiang, NIO, Letao, Lantu, and ARCFOX that are concerned about policy changes dissuading users from making purchases. Therefore, they self-fund policy subsidies for consumers. If consumers do not enjoy national or local subsidies after purchasing a car, the automakers will cover the cost themselves, which can not only lock in users in advance but also eliminate consumers' worries.

There are also brands like NIO, XPeng, and IM Motors that offer configuration options and discounts or charging privileges to enhance the consumer experience. Some brands with good sales performance have also joined in, such as Xiaomi Automobile. As its orders are still backlogged, it has not offered cash or trade-in subsidies but has extended the rights to receive leather seats and intelligent driving experiences upon launch.

For joint ventures and luxury brands, which have faced pressure on sales throughout the year, the price reductions and promotions at the beginning of the new year seem even more intense than those of domestic brands. As domestic brands gradually increase their market share to over 70%, joint venture automakers' product competitiveness has often lagged behind that of domestic automakers. The moat of joint venture automakers may lie in their ability to offer more significant price reductions after years of cost amortization – a limited number of chips they can play.

In terms of price reductions and promotional efforts, FAW-Volkswagen, SAIC Volkswagen, FAW Toyota Prado, Audi, and others often offer direct cash discounts of tens of thousands of yuan, making their promotional efforts quite impressive. Even second-tier luxury brand Jaguar has seen maximum price reductions of up to 170,000 yuan, allowing consumers to purchase a luxury vehicle at the price of a joint venture B-segment car.

Of course, looking at the automakers that have reduced prices so far, the number of joint ventures and luxury brands that have entered the fray is the smallest. Given the typical response capabilities of joint venture automakers, it is believed that the vast majority of joint venture vehicles will join the price reduction and promotion camp before the Spring Festival.

Relevant departments and local governments actually have some arrangements for the subsidy policies in 2025. At the end of last year, the Ministry of Commerce revealed that it was planning ahead for the continuation of the car trade-in and upgrade policy in 2025 to stabilize market expectations. Places like Hubei and Hunan have already issued new regulations for car trade-ins and upgrades, and from January 1 to before the introduction of the national car trade-in and upgrade policy in 2025, the 2024 subsidy policies will still be implemented.

Intensifying Internal Competition; Price Wars Become the New Normal

Given that many automakers have set ambitious annual sales targets for 2025 when releasing their 2024 results and outlooks, they will likely compress profits as much as possible to achieve these sales targets and market share indicators throughout the year in terms of pricing or promotional strategies.

At the same time, facing the current backdrop of the automotive industry, a series of issues such as insufficient industrial demand, overcapacity, and severe product and technology homogenization will undoubtedly accelerate the industry's internal competition. Therefore, it is only natural that price wars in the automotive industry will continue and intensify.

Based on the experience of 2024, if the state had not intervened to save the sluggish first-half auto market, the price wars in the second half would have been even more intense. Competition and market tension in the automotive industry should have been even greater, and the influence and destructiveness of such price wars would have been sufficient to cause many automakers to face cash flow disruptions and operational halts.

Retail sales data from the China Passenger Car Association shows that passenger vehicle retail sales increased by 13% year-on-year in the first quarter of 2024. As competitive pressures in the auto market further increased in the second quarter, overall retail sales saw a negative growth of 5%. However, with the full implementation of the national scrappage and upgrade policy and the gradual launch of the trade-in and upgrade policy in the third quarter, the auto market returned to zero growth.

Driven by the trade-in and upgrade policy, the auto market experienced explosive growth in the fourth quarter, with year-on-year growth reaching an impressive 14%, delaying the extreme internal competition and giving automakers, dealers, and upstream and downstream supply chain enterprises a sigh of relief. Therefore, looking at the entire 2024 auto market, even though competition was fierce and pressures were immense, a smooth transition was achieved largely due to policies. It is not an exaggeration to say that policies were the savior of the 2024 auto market.

The data is even more straightforward. According to the Department of Consumption Promotion of the Ministry of Commerce, as of December 19, nearly 2.7 million vehicles were scrapped and upgraded nationwide, and over 3.1 million vehicles were replaced and upgraded. Currently, the national subsidy for new energy vehicles scrapped and upgraded is 20,000 yuan, and the national subsidy for gasoline vehicles is 15,000 yuan, both of which are broadly in line with expectations. It can be seen that after investing approximately 50 billion yuan in subsidies, the country has stabilized national auto sales growth at around 3% in 2024, with sales reaching 31 million vehicles.

Although the 2025 trade-in and upgrade policy has not yet been announced, on the one hand, the state is issuing subsidies of tens of billions of yuan and exempting vehicle purchase taxes for many vehicles. According to the scale of previous vehicle purchase tax concessions, the state's tax revenue has also seen a significant reduction. Cui Dongshu expressed concern that subsidy policies in various regions in 2025 may have stricter standards after the transition period and that subsidy amounts may decrease slightly. It is necessary to plan and implement these policies reasonably and controllably according to the subsidy scale.

In addition, some industry insiders are concerned that after each large-scale subsidy, the auto market tends to experience a period of sluggishness. Policy stimulation is ultimately a regulatory tool that can overdraw future consumption, especially in the current economic environment where people dare not spend. The 2025 auto market may face even greater difficulties.

Coupled with the deteriorating competitive environment in the current auto market, with more competitors in the same market segment and technological advancements bringing more upgrades in terms of experience, prices continue to decline. In this auto market landscape, the normalization of price wars is inevitable. The future competitive environment in the auto market will continue to deteriorate irreversibly, with transaction prices and profits of automakers and brands further declining until many automakers are eliminated.

The impact of price wars on the entire industry is also reflected in some data. For example, from January to November 2024, profits in the automotive industry fell by 7.3% year-on-year, and the profit margin in the automotive industry was only 4.4%, a year-on-year decrease of 0.6 percentage points, lower than the profit margin of the entire downstream industry.

The continuous decline in profit margins is bound to affect the healthy development of the entire industry. Recently, Li Shufu of Geely, Wei Jianjun of Great Wall, and other automaker executives have sounded the alarm for the entire industry. They believe that under price wars, there are cases of cutting corners and substituting inferior products for superior ones within the industry, which will affect product quality and safety, damage brand images, and ultimately harm consumers' interests.