Tesla is majorly disrupting the EV market in China and is giving 50% discounts on its cars. This has led to a major price war in the market, and caused other Chinese EV makers to change their strategies.
Tesla Inc. sparked a price war in China, threatening to reshape the world’s largest automobile market, with steep reductions threatening to force some manufacturers out of business.
It began in October. Elon Musk’s electric-vehicle manufacturer, a significant participant in hyper-competitive China, has reduced costs on models manufactured at its massive plant on the outskirts of Shanghai. In January, Tesla’s locally manufactured vehicles were up to 14 per cent cheaper than last year, and in some instances nearly 50 per cent less costly than in the US and Europe.
Tesla forces rivals to change their strategyRivals were forced to follow suit as a result of the changes. Local startups like Xpeng Inc. and Nio Inc. were among them, as were major international names like Volkswagen AG and Mercedes-Benz Group AG, which gave reductions of up to 70,000 yuan ($10,000). Ford Motor Company’s Mach-E electric sport utility vehicle has been reduced to a beginning price of 209,900 yuan, roughly one-third less than in the United States.
“Tesla wreaked havoc on the rest of the market,” said Jochen Siebert, managing director of JSC Automotive, a Shanghai and Stuttgart-based consultancy.
According to Bloomberg News and local media, at least 30 more automakers have reduced costs.
On Wednesday, the China Association of Automobile Manufacturers demanded an end to the price war, claiming that it was not a long-term answer to a slowdown in sales and inventory buildup and that the industry should “return to normal operation” to guarantee its healthy growth.
The subsidiary warCommentaries in Chinese media earlier this week also said it was unethical for regional governments to give incentives on locally manufactured cars. In one case, Hubei county and the state-backed Dongfeng Motor Group Co. reduced prices on Citroen C6 versions by up to 90,000 yuan, or nearly 40 per cent.
The cutbacks come after a difficult period for China’s car industry. Consumer spending has been severely impacted by long-standing Covid limits, while sales have also been impacted by the end of last year’s elimination of state subsidies on EV purchases. Supply-chain problems have also harmed businesses around the world.
Despite these obstacles and a slowing economy, retail sales of new energy vehicles, including completely electric and plug-in hybrids, nearly doubled to 5.67 million in 2018. BYD Co. accounted for approximately 30 per cent of those. In November, Tesla delivered a monthly record of over 100,000 EVs from Shanghai.
Also read: Chinese woes for Tesla: EV maker cancels second production line due to lacklustre demand
With the increased acceptance of EVs, China’s car industry is undergoing “a very profound reshuffle,” according to Nio Chief Financial Officer Steven Feng in an interview.
“We expect the industry to go through some profound fundamental consolidation after this price war,” he said. “It’s almost universally agreed that China now has too many automakers.”
A change in customer habitCustomers are becoming more choosy, and demand is robust, according to Feng, who added that Nio is optimistic of reaching its goal of a quarter-million EV sales this year, which is more than double the total for 2022. Tesla’s director of manufacturing, Tom Zhu, stated that the company’s price cuts “created enormous demand.”
According to Bloomberg New Energy Finance, EV sales in China could hit 8.1 million units this year, compared to 3.2 million in Europe and 1.9 million in the United States.
According to Sanford C. Bernstein & Co., there are no indications of a slowdown in competition, with 155 new pure electric and plug-in hybrid versions scheduled to be revealed in China this year alone.
That implies more price cuts could come from the larger, monetarily stronger players.
According to JSC Automotive’s Siebert, Tesla has “several billion dollars that they can use for this purpose while others do not.”
In addition to Tesla, Warren Buffett-backed BYD is capable of making further cutbacks, according to Morgan Stanley analysts Tim Hsiao and Cindy Huang in a March 19 report. The Austin, Texas-based company’s price battle erupted quicker and more severely than anticipated, causing a “market reshuffle,” they said.
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