By Li Panpan

(JW Insights) Apr 24 -- China’s new energy vehicle market shows sluggish growth in the first quarter of 2023, resulting in price wars among automakers led by Tesla and de-inventory by the battery leader CATL, reported JW Insights.

CATL achieved a total operating income of RMB89.04 billion ($12.92 billion) in the first quarter of 2023, a year-on-year increase of 82.9%, and a net profit attributable to shareholders of listed companies of RMB9.82 billion ($1.42 billion), a year-on-year increase of 558.0%.

However, many workers in the company were said to be leaving due to salary deductions caused by the sharp shortening of overtime hours, reported Chinese finance media outlet Cailianshe on April 20. Some employee dormitories were already vacant. Others commented that reduced overwork time was attributed to the expansion of production lines with expanded capacity.

It’s known that the factory's demand for front-line employees indicates whether the production line orders are sufficient with solid market demand.

CATL didn’t respond to employees leaving. It said the sales of the new energy vehicle industry in the first quarter improved month by month, and the company's sales volume was greater than the production volume, which helped to reduce inventory at a recent performance briefing.

CATL’s de-inventory is possibly accompanied by the weak growth of the new energy vehicle market. Reduced purchasing power means a bottleneck for the whole upstream industry. That’s also why automakers slashed prices and offered various incentives and subsidies at the beginning of this year to stimulate sales.

Tesla was the first to deduct prices in the Chinese auto market. But its first-quarter performance was not good. Its revenue hit $23.329 billion in the first quarter, a year-on-year increase of 24%, while its net profit decreased by 24% year-on-year to $2.513 billion. Its gross profit margin in the first quarter was also lower than market expectations.

Chinese automakers are also resorting to strategies other than price wars. Many aim to expand international market shares with slowed down market penetration rate in China, according to industry insiders.

The anxiety of car companies is undoubtedly felt in the supply chain. CATL is also increasing its overseas market layout with factories expanding operation in Germany, planned in Hungary, and through cooperation with Ford in the US.

The problem of structural overcapacity is also a hurdle for most manufacturers. "The consumer electronics market has been in a low ebb in recent years. Upstream manufacturers have been flocking into the automotive industry, resulting in overcapacity, said the industry insider.

It’s difficult for companies with weaker innovation and R&D capabilities to compete in this market. So most manufacturers can only participate in price wars if there is no obvious recovery in end-market demand.

Tesla lowered the price of its models for the US market not long ago. A new round of price cuts is said to start in the Chinese market. In response to the strategy change by important customers like Tesla, CATL might need to follow suit, although it’s a battery industry leader with technical strength.