China’s new car price war spills over into second-hand market

First came Tesla’s unilateral price cuts in October, then more in January. Since then, greatly inflamed by government action, the bloodbath in the EV market has spread to ICEs and into the second-hand market.

Photo from CFP

Photo from CFP

By HUA Zijian


China’s second-hand car dealers are beginning to feel the shock of a raging price war threatening to lay waste to the country’s vast auto market.

Like many wars, today's widespread carnage began with an innocuous incident last October, when Tesla lowered prices for its Model 3 and Model Y cars. This came less than a month after the company denied any intention to cut prices. Tesla had actually increased prices six times last year before the reduction.

Between denial and reduction, falls the shadow

Tesla buyers were furious. Those who had purchased their dream cars between the denial and the reduction protested outside Tesla showrooms, asking for their money back.

Then, early in January, Elon Musk’s Tesla Inc. did it again, cutting the prices of the Model 3 by six percent, and the Model Y by 13.5 percent. Hundreds of Tesla owners again gathered at showrooms and distribution centers in cities from Chengdu to Shenzhen, demanding rebates and credit after “overpaying” for cars they bought last year.

Ten days later, XPeng blinked and prices by up to 13 percent. Dominos soon fell all over China. NIO began chopping down prices in early February. BYD took its machete to prices in February and March. Overseas automakers and JVs have barely hesitated to dismember their price structures and offered big incentives.

Ford, Toyota and Volkswagen prices have all been cut down to size in the past few weeks.

What began with a not-very-surprise attack by Tesla has extended to a bloodbath among ICE (internal combustion engine) makers. EVs now compete very strongly with ICE vehicles. Old-style makers of traditionally-powered cars have decimated prices by as much as 40 percent prices, as the likes of Mercedes-Benz and Chevrolet seek to protect their hard-won market share. 

‘Insane discounts’

Things got much worse when government subsidies in Hubei province early this month. The local government began doling out huge subsidies, joining forces with the local car company, state-backed Dongfeng Motor Group to offer price cuts of up to 90,000 yuan ($13,000) on some models. The promotion will run until the end of the month.

Less than two weeks later, half a dozen provincial governments are doing the same. Jilin province in northeastern China is offering 150 million yuan of subsidies this month for customers buying cars made by FAW Group Co. Reductions on individual cars to be as much as 37,000 yuan.

More than thirty companies, including luxury brands, are offering the kind of “insane” discounts customers could previously only dream about. Chevrolet has started offering discounts of up to 70,000 yuan on the Blazer, which starts at 230,000 yuan, along with other models like the Equinox and Monza. Incentives are offered on 30 electric and traditional car makes from BYD to NIO, from Toyota to Ford.  

This has led to the absurd situation of new car prices dipping below second-hand in some cases and completely wiping out demand for used ones. The used-car lots of China’s smaller cities have become the latest battlefront. The melee shows no sign of abating.

‘It is happening everywhere’

This has completely destabilized the second-hand market. A dealer in Hubei said he has to sell at half cost to avoid building up inventory. Even so, customers have no reason to buy a used car. The latest quote for a new Dongfeng-Citroen C6 is 120,000 yuan while a used one sold for as much as 150,000 yuan just a few weeks ago.

Even some former best sellers in the second-hand market, ICE cars and EVs alike, are struggling to find buyers. The price of a second-hand Tesla is 15 percent lower than three months ago. Typically, second-hand prices drop by less than 10 percent a year.

“Customers who would have bought second-hand are now considering buying new. Or they wait for second-hand prices to get lower. It is happening everywhere across the country,” said the Hubei dealer.

From recovery to relapse

Second-hand prices have been suppressed since last June when the government halved sales taxes for new ICE cars to stimulate the market. This meant immediate losses for dealers, who incur depreciation costs by the second and thus need to flip inventory as quickly as possible. Around 90 percent of the dealers surveyed by Jiemian News said they lost money last year.

The subsidies show the pressure the Chinese auto industry is facing after the withdrawal of some support. Several years of state subsidies for NEV purchases expired at the end of 2022.

Before the tax cuts took effect, China had a 10 percent purchase tax rate on ICE vehicles. The policy was not renewed when it expired at the end of last year. However, the EV purchase tax exemption, which also to has expired at the end of last year, has been renewed until the end of 2023. Many had expected the second-hand market to recover in Q1 when the tax break expired, but the market has raced ahead of predictions.

End of the road

“The inventory I had at the beginning of the year is still sitting there. Now given how volatile new car prices are, no one dares to increase their inventory anymore,” the dealer told Jiemian News.

It’s not uncommon to lose between 50,000 to 60,000 yuan for each car, he said. In large second-hand car markets in Beijing and Nanning, many storefronts are now empty.

The consensus is that new car prices will rise and stabilize when new emission standards draw breath this July. Then maybe people will want to buy second-hand again. But EVs are another wild card.

“If EVs start another round of price cuts when ICE prices finally stop falling, I’ll be done for,” the dealer said.