China may be coaxed into delaying an emissions rule that was set to leave auto dealerships with a glut of worthless, non-compliant gasoline cars, just as Swiss banking giant UBS predicts an aggressive price war for cars of all kinds beginning in mid-2023.
Back in 2016, China announced emissions rules that are set to come into force this July, writes Electrek. The rules do not ban the internal combustion engines (ICE), but they set stricter emissions standards on pollutants like carbon monoxide, nitrogen oxide, and particulates, which must be reduced by one-third to half.
“Automakers seem to have planned to continue selling polluting vehicles up until the deadline, but then COVID-19 hit,” Electrek writes. Car sales dropped during the pandemic, and though they may recently have rebounded, that recovery has been in EV sales, not ICE cars. The big discounts offered on polluting vehicles haven’t brought in customers, who have rather adopted a “wait-and-see” attitude: they think they can wait longer till prices fall further.
So dealers and manufacturers now face a situation where their non-compliant cars will soon be valueless. “Any price they can get for the cars that’s greater than zero may be worthwhile, come July.”
The supply problems are playing out against a wider squeeze for the global auto sector, reports Proactive, a UK investment wire. “Given the bullish production schedules, we see high risk of overproduction and growing pricing pressure,” UBS warned. “The price war has already started unfolding in the EV space, and we expect it to spread into the combustion engine segment.”
All told, UBS reported, five million vehicles could be left unsold.
So far, Tesla has cut the price of its basic Model Y, and automakers Ford and Lucid have followed suit, Proactive says, with inflation expected to drive demand down by 6% later this year. But there’s an even bigger problem taking shape for gasoline cars in China, where surging interest in EVs appears to have caught auto dealers flat-footed.
The glut will most harshly affect foreign automakers in the country that have been slower to adopt EVs than their Chinese counterparts. It is “a major disruption in the world’s largest car market,” writes The Driven. “The next three months could spell disaster for some legacy auto companies.”
Chinese companies like BYD make more EVs than ICE cars, while foreign companies like Toyota and Volkswagen make and sell mostly gasoline cars in China, Driven says. “So, it will be predominantly Japanese, German, and United States carmakers that are hit the hardest by the inventory crisis.”
“Similar trends will play out elsewhere in the world in the coming years, and many automakers simply are not ready,” Electrek writes. “The inability to project trends seven years into the future will prove to be the downfall of laggard companies that don’t take EVs seriously.”
The China Auto Dealers Chamber of Commerce has asked the government to delay the regulations for six months. The group has also urged automakers to immediately stop producing new cars that do not meet the new standards.
In a recent announcement, Shen Jinjun, president of the China Auto Dealers Association, indicated the government may agree to the delay.
