Tesla wreaks havoc on China’s EV market with new price, 50% off all cars

Tesla is significantly disrupting the electric vehicle market in China and offering 50% discounts on its cars. This led to a major price war in the market and caused other Chinese electric vehicle makers to change their strategies.

Tesla Inc. has unleashed a price war in China, threatening to reshape the world’s biggest car market, with deep cuts threatening to force some manufacturers out of business.

It started in October. Elon Musk’s electric vehicle maker, a major player in hyper-competitive China, has cut costs for models made at its massive factory on the outskirts of Shanghai. In January, vehicles made locally by Tesla were up to 14% cheaper than a year ago, and in some cases almost 50% cheaper than in the United States and Europe.

Tesla forces rivals to change strategy
Rivals were forced to follow suit following the changes. Local startups like Xpeng Inc. and Nio Inc. were among them, as were big international names like Volkswagen AG and Mercedes-Benz Group AG, which gave discounts of up to 70,000 yuan ($10,000). Ford Motor Company’s Mach-E electric sport utility vehicle has been discounted to a starting price of 209,900 yuan, about a third less than in the United States.

“Tesla has wreaked havoc on the rest of the market,” said Jochen Siebert, managing director of JSC Automotive, a Shanghai and Stuttgart-based consultancy.

Also Read: Tesla Investor Day: Elon Musk’s ‘Master Plan’ for Tesla is Ambitious, No Sign of a Budget Car

According to Bloomberg News and local media, at least 30 other automakers have cut costs.

On Wednesday, the China Association of Automobile Manufacturers demanded an end to the price war, saying it was not a long-term response to slowing sales and inventory accumulation and that the industry should “return to normal operation” to ensure its good health. growth.

The subsidiary war
Chinese media comments earlier this week also said it was unethical for regional governments to offer incentives to locally made cars. In one case, Hubei County and the state-backed Dongfeng Motor Group Co. reduced the prices of Citroën C6 versions by up to 90,000 yuan, or almost 40%.

The budget cuts come after a difficult period for the Chinese auto industry. Consumer spending was badly hit by long-standing Covid limits, while sales were also hurt by the end of last year’s elimination of state subsidies on electric vehicle purchases. Supply chain issues have also hurt businesses around the world.

Despite these headwinds and a slowing economy, retail sales of new energy vehicles, including all-electric and plug-in hybrid vehicles, nearly doubled to 5.67 million in 2018. BYD Co. accounted for about 30% of these. In November, Tesla delivered a monthly record of more than 100,000 electric vehicles from Shanghai.

Also Read: China Troubles for Tesla: Electric Vehicle Maker Cancels Second Production Line Due to Sluggish Demand

With the growing acceptance of electric vehicles, the Chinese auto industry is undergoing “a very profound overhaul”, according to Nio’s chief financial officer, Steven Feng, in an interview.

“We expect the industry to go through deep fundamental consolidation after this price war,” he said. “It is almost universally accepted that China now has too many automakers.”

A change in customer habits
Customers are increasingly demanding and demand is robust, according to Feng, who added that Nio is optimistic about reaching its goal of a quarter of a million electric vehicle sales this year, more than doubling. of the total for 2022. Tesla manufacturing chief Tom Zhu said the company’s price cuts “have created huge demand.”

According to Bloomberg New Energy Finance, sales of electric vehicles in China could reach 8.1 million units this year, compared to 3.2 million in Europe and 1.9 million in the United States.

Also Read: Elon Musk’s Playbook for Tesla to Survive the Recession: Dramatically Cut Costs, Engage Competitors in Price Wars

According to Sanford C. Bernstein & Co., there’s no sign of a slowdown in competition, with 155 new all-electric and plug-in hybrid versions set to be unveiled in China this year alone.

This implies that more price reductions could come from the larger and financially stronger players.

According to JSC Automotive’s Siebert, Tesla has “several billions of dollars that they can use for this purpose while others don’t.”

In addition to Tesla, Warren Buffett-backed BYD is capable of further cuts, according to Morgan Stanley analysts Tim Hsiao and Cindy Huang in a March 19 report. The Austin, Texas-based company’s price battle erupted faster and more severely than expected, sparking a “market reshuffle”, they said.

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