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For decades, Western companies made a fortune betting on the inexorable rise of the Chinese consumer. Now an economic slump and the emergence of ferocious local competitors means those bets look less safe as price wars erupt.
Discounts and special deals are being offered across consumer brands from food and clothing to consumer electronics and cars, reflecting a dramatic shift in consumption patterns in the world’s second largest economy.
One of the most intense price wars is raging in the electric vehicle (EV) industry, where a “life and death” race has manufacturers scrambling for survival.
Tesla’s China market share shrank to 4% in April, almost halving from 7.7% in March, according to data released by the China Passenger Car Association on Friday. Deliveries from its Shanghai factory, its largest globally, fell 18% last month from a year earlier.
The sharp drop contrasts with rising sales by its biggest Chinese rival BYD, which reported a 29% jump in pure EV deliveries.
“Everyone has changed the way they think about China,” said Anne Stevenson-Yang, co-founder and managing principal at J Capital Research. “The business climate has changed entirely.”
Last month, Tesla (TSLA) announced aggressive price cuts in the country, shortly after also reducing prices in the United States and Germany. The move added to a series of price reductions that it has made in its biggest overseas market since late 2022.
Last year, the Chinese economy grew 5.2%. Outside the pandemic years, that was its slowest pace of annual expansion since 1990, when gross domestic product increased only 3.9% because of international sanctions following the 1989 Tiananmen Square massacre.
Consumers have curtailed spending as their job and income prospects worsened. A prolonged crisis in real estate, which accounts for 70% of household wealth, and a stock market meltdown have added to their woes.
Tesla CEO Elon Musk makes a surprise visit to China, it coincides with Beijing’s auto show where reports suggest he is trying to export his company’s self-driving technology. CNN’s Marc Stewart has more.
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In the 1990s, “every company in the West” was hiring consultants and having boardroom meetings about how to do more in China, according to Stevenson-Yang. But now the consultants are gone and rather than talking about how to tap into rapid growth, the C-suite discussions are all about “getting out, protecting one’s operations or balancing supply among several countries.”
“China now is somewhere around the status of a Brazil — big, important but difficult,” she added.
The country’s economic woes aren’t confined to Tesla and the EV industry either. They’re hitting other American corporate giants like Apple (AAPL), Starbucks (STUX) and McDonald’s (MCD): all struggling to adjust their business strategies for a rapidly changing market.
Discounted iPhones
Worries about the future have forced Chinese consumers to be more budget-conscious, said Yang Wang, senior analyst for Counterpoint Research. As a result, purchases associated with premium or luxury have taken a back seat.