Last year, Tesla fired the first shot of price reduction in China. The price war it launched is expected to reshape the Chinese automobile market and may lead to the bankruptcy of some Chinese car manufacturers.
In October 2022, Tesla lowered the prices of some models produced at its Shanghai factory. Then, in January of this year, the price war escalated. Tesla’s latest price reduction has made Chinese models up to 14% cheaper than last year, and some models nearly 50% cheaper than in the US and Europe.
Over 30 automakers “join the battle”
Tesla’s move has left its competitors with no choice but to follow suit. This includes local electric vehicle newcomers such as XPENG and NIO, as well as international leading brands such as Volkswagen and Mercedes-Benz, offering discounts of up to RMB 70,000. Ford’s Mach-E electric SUV is priced at 209,900 yuan, or about $32,000, which is about a third cheaper than in the US.
“Tesla has created a disaster for other market participants.” Jochen Siebert, Managing Director of consulting firm JSC Automotive, said the company has offices in Shanghai and Stuttgart.
According to media reports, more than 30 car manufacturers in China have already reduced their prices. The China Association of Automobile Manufacturers called for an end to the price war on Wednesday, stating that it is not a long-term solution to slow sales and inventory backlog. The organization stated that the industry should “resume normal operations” to ensure healthy development.
Chinese media commented earlier this week that it is inappropriate for local governments to provide subsidies for locally produced cars. For example, Hubei Province and Dongfeng Motor Corporation reduced the price of the Citroen C6 model by 90,000 yuan, a decrease of nearly 40%.
This price war comes at a difficult time for the Chinese automotive industry. The cancellation of subsidies for the purchase of electric vehicles by the government at the end of last year has affected sales, and supply chain disruptions have also damaged the global automotive industry. Despite these challenges, the retail sales of new energy vehicles in China (including pure electric and plug-in hybrid vehicles) almost doubled to 5.67 million vehicles last year, of which BYD accounted for about 30%. In November last year, Tesla shipped over 100,000 electric vehicles from Shanghai, setting a monthly record.
Reshuffling
NIO CFO Feng Wei stated in an interview on Wednesday that as electric vehicles become more popular, the Chinese automotive market will undergo a “profound reshuffling.” “We need to get through this price war at the beginning of this year, and then we expect the industry to undergo some profound fundamental integration,” he said. “There are too many car manufacturers in China now, which is almost a consensus.”
Feng Wei stated that customers are becoming more picky and demand is strong. He added that NIO is confident of achieving its target of selling 250,000 electric vehicles this year, more than double its sales in 2022. Tesla Greater China President Zhu Xiaotong stated that the company’s price reduction “has generated tremendous demand.”
According to data from Bloomberg New Energy Finance, China’s sales of electric vehicles this year may reach 8.1 million vehicles, while Europe is expected to reach 3.2 million vehicles, and the United States is expected to reach 1.9 million vehicles.
Currently, there is no sign of competition slowing down. According to data from investment bank Bernstein, China is expected to launch 155 new pure electric and plug-in hybrid models this year alone. This means that larger companies with stronger financial resources may further reduce prices.
Cash determines life or death
Sibert, a consulting firm from JSC Automotive, said that “Tesla has ‘billions of dollars available for the purpose of reducing prices, while other companies do not.'”
In a report on March 19, Morgan Stanley analysts wrote that, in addition to Tesla, BYD also has the ability to launch a new round of price cuts. They said that the price war initiated by Tesla came faster and more severely than expected, and will “accelerate market reshuffle.”
Morgan Stanley stated that the balance sheets of the three major new forces in China’s auto industry, NIO, XPENG, and LI, are strong enough to self-fund in the next 18 months.
“Compared with gasoline cars, the price reduction makes electric cars more attractive, further squeezing traditional car manufacturers,” said Yang Jing, director of Chinese enterprise research at Fitch Ratings in an interview. In addition, she stated in a report on March 16th that “companies without reliable external financing channels may face ‘survival challenges’ in the next two years.”
The stock market has had mixed reactions to the price war. Tesla’s stock price immediately fell after the company adjusted its pricing, but now it has started to rise again and far exceeds China’s major electric vehicle manufacturers. Tesla’s stock price has risen by 60% this year, while LI Auto’s American depositary receipts have risen by 15%. NIO’s stock price in Hong Kong has fallen by 7%.
“This harsh situation will continue until mid-2024,” said Tu Le, managing director of consulting firm Sino Auto Insights. “For some weaker players, this is really a matter of life or death.”
Source：IThome
