Shulou(Shulou.com)11/24 Report--

On January 13, following price cuts in China, Japan, South Korea and Australia, Tesla announced sharp price cuts in Britain, the United States, Germany, France, the Netherlands and Norway.

Tesla price reduction in various countries source: on the face of it, Tesla, this "price butcher's knife", has been killed all over the world, and a price war is inevitable. Tesla's successive price cuts in China have made it into the new energy vehicle market in the 200000-300000 range, and many models in this price range will have to match Tesla's positive "hard steel".

The media exclaimed that Tesla's price reduction would deal a serious blow to the domestic new energy vehicle industry, and even "take away" Xiaopeng. Even BYD, which leads the world in sales, has caused many media "worries" that it will not be able to compete with Tesla's "price butcher's knife."

In fact, there is no need to worry. As early as 2022, many research institutions have predicted that Tesla will reduce prices, and China's new energy car companies have also expected it for a long time, but they are still doing the opposite-price increases. Rather than saying that Tesla is ready to reduce the price and start a price war, it is better to say that Tesla's growth is weak, so he has to reduce the price.

The relationship between supply and demand determines the price, the right to increase the price only belongs to the seller's market, enterprises in the buyer's market can only reduce the price.

Tesla's orders in the Chinese market are rapidly drying up, with a backlog of 25000 orders in November 2022 and less than 6000 in the first week of December. If it doesn't sell any more, the price will be reduced naturally. Domestic car companies such as BYD have a backlog of orders. In September 2022, it was reported that the backlog of BYD orders had reached 700000 vehicles, while its monthly production capacity was about 200000 vehicles, and consumers had to wait three to six months to pick up their cars, so the price increase was justified.

Tesla price reduction, not terrible, Tesla is not a scourge. In 2021, Wang Chuanfu said at the China Automotive Chongqing Forum that technically, Chinese brands have surpassed in an all-round way. Whether it is modeling technology, or battery, motor, electric control and other new energy vehicle core technology, as well as intelligent technology such as intelligent network connection, intelligent cockpit, have comprehensively surpassed foreign-funded enterprises and led the development of new energy vehicles around the world.

Foreign media MotorTrend said that Xiaopeng only 8 years to catch up with the pace of Tesla, and made it clear that Xiaopeng's intelligent auxiliary system, has been comparable to Tesla.

Focusing on the impact of Tesla's price reduction on the domestic new energy vehicle industry, this paper tries to answer four questions:

1. What is the specific situation of Tesla's price reduction?

2. What is the reason for Tesla's price reduction this time?

3. Tesla cut prices, why don't domestic mainstream new energy car companies follow suit?

4. How do domestic new energy car companies cope with Tesla's competition?

1. Five price cuts in four months. With regard to the sharp price reduction of Tesla's models in China, many Tesla owners, especially those who bought Tesla in recent months, are somewhat dissatisfied. Some car owners said they had suffered a loss of 30,000 yuan in a week. "Tesla did not take any compensation measures, not even an apology."

Some car owners organized themselves to find Tesla to "safeguard their rights" and contributed a funny joke:

In a screenshot of moments posted by car blogger Yan Chuang, an activist car owner shared that "I invited a friend to Tesla to protect his rights. I bought a dog at a reduced price."

Yan Chuang Weibo screenshot Tesla reduced prices, is it really so fragrant?

Tesla's price cut this time is very big, making its price in China hit an all-time low. Specifically, the starting price of Model3 has dropped by 36000 yuan, and that of ModelY by 29000 yuan. The price reduction of the remaining versions of the two models ranges from 20, 000 yuan to 48000 yuan. Such a big drop, so that the car owners who just bought Tesla are understandably unbalanced, but "compensation" is probably very difficult to obtain. Musk has responded on the social platform: if Tesla's price goes up, car owners who bought at a low price before will not make up the price difference for Tesla.

Interestingly, some netizens who cut prices and did not enjoy the discount after buying Tesla also took the initiative to recommend friends to buy, on the grounds that they "hope to book a car through a friend and use her recommendation code in exchange for over-quota, so as to get psychological comfort." Tesla's price reduction has obviously boosted sales. Tesla China won 30, 000 orders in three days after the price cut was announced, according to Sina Finance.

However, the speech made by Li Bin, the founder of Xilai, two years ago, may have poured cold water on car owners who snapped up Tesla, the lowest price in history, and felt "really fragrant". Li Bin said: "after Tesla's quantity has come up, the cost has come down, and I am not surprised that it has dropped to more than 100,000 yuan."

In fact, Tesla cut prices sharply in Britain, the United States, Germany, France, the Netherlands and Norway on the 2nd and 7th day after the price reduction in China. In this round of global price cuts, the average price reduction is not in China, but in the United States, which reached 14.7%, while China only fell by 10.5%.

This is not the first time Tesla has cut prices in China. Including this price reduction, in China, Tesla has cut prices five times in various ways in less than four months, and the previous four price reductions occurred in September, October, November and December 2022.

Li Bin had predicted that Tesla would cut prices on the basis of pricing at cost. Tao Lin, vice president of foreign affairs of Tesla, recently responded to the price reduction with the expression of "insisting on pricing at cost". There is no doubt that this indirectly confirms the accuracy of Li Bin's "Tesla may only need more than a hundred thousand in the future."

Tao Lin Weibo screenshot Tesla's production capacity is developing rapidly, and its costs will fall very fast, and the day when it will face the "siege" of domestic new energy vehicles to more than 100,000 yuan may not be far away.

The views of second-hand car dealers also indirectly confirm this judgment. According to Zhengdao News, Mr. Wen of Guangzhou small Hammer used car market believes that Tesla's performance-to-price ratio is not enough to support the current price, and there is still a long downside space. Because of the average loss of 30,000 to 40,000 yuan for a Tesla used car, the slogan "do not accept Tesla" has been put up at the gate of the used car market.

Recently, data from the China Automobile Circulation Association show that the value preservation rates of Model Y and Model 3 (one year old) are 81.0% and 77.9% respectively, ranking 9th and 14th respectively, far lower than polar krypton, Hongguang MINIEV and zero running models.

Picture source: when the China Automobile Circulation Association dropped to more than 100,000 yuan by Tesla, now the car owners who buy Tesla and feel "really fragrant" will probably have to "ask for an explanation" and "make up for the price difference."

2. What is the reason for Tesla's price reduction this time? there are two reasons, one is that orders dry up, that is, consumers do not want to buy, and the other is that the stock price has plummeted, that is, investors have lost confidence.

Before that, Tesla never worried about demand and pursued production capacity. Musk has repeatedly mentioned Tesla's goal of producing 20 million vehicles a year by 2030, so as to build production capacity on all continents around the world. After Tesla's Shanghai super factory became the benchmark, it was reported more than once that Tesla would build a second super factory in other cities in China, causing heated discussion in the media and the "pride" and "excitement" of some residents of the city.

Who would have thought that Tesla's production capacity is growing rapidly, but demand has become a problem. In China, Tesla still has a backlog of 25000 orders in November, leaving less than 6000 in the first week of December. In short, consumers don't want to buy it.

Demand has fallen and production has been suppressed. Tesla's expansion plan for his Shanghai plant has been delayed, according to Bloomberg. Production at his Shanghai super factory was suspended in December 2022, when car shipments fell to about 56000 units that month. Moreover, the factory's Spring Festival holiday is scheduled for two weeks from January 20 to January 31, in sharp contrast to the three-day shutdown in 2021. It will be more difficult to realize Tesla's wish to build super factories in other cities outside Shanghai.

Tesla has encountered a demand crisis not only in China, but also in the global market. TroyTeslike statistics show that as of December 8, Tesla's global order backlog plummeted to 163000 from 476,000 in July. Such a little demand, for Tesla Super Factory, can be used up in 40 days.

To solve the problem of oversupply, there are generally two options: one is to allow sales growth to slow, and the other is to cut prices to maintain growth, and Musk obviously chose the latter.

In addition to the drying up of orders, Tesla's share price also fell sharply. For the whole of 2022, Tesla's share price fell 69%, wiping out hundreds of billions of dollars in market capitalization. According to Forbes of the United States, Musk has lost his position as the richest man in the world and become the "biggest loser" in 2022. By the end of 2022, Musk was worth about $147 billion, down $125 billion from the end of 2021 and almost half of it.

Behind the fall in share prices is a loss of investor confidence. At the 2021 shareholders' meeting, Mr Musk said Tesla's sales target was to grow by more than 50 per cent a year, with a global delivery target of 1.5 million vehicles in 2022. However, only 1.31 million vehicles were delivered in 2022, an increase of only 40 per cent compared with 2021. Obviously, Tesla did not achieve the annual sales target, breaking the expectations of investors, it is not surprising that investors choose to vote with their feet.

Source: Tesla earnings report more crucially, in 2022, in the face of Tesla's possible sluggish sales, Musk focused on the $44 billion acquisition of Twitter, which became the last straw to crush investor confidence. Musk's share price has plummeted since it expressed its willingness to buy Twitter in early April. DanIves, an analyst at Wade Bush, an investment bank, said, "based on the disaster facing Twitter, this is a year of chaos caused by Musk himself."

Throughout Musk's social media tweets, he doesn't think the acquisition Twitter has affected the stock price, but he still attaches importance to the fact that sales fall short of the target, so Tesla slashed prices around the world to expand sales and boost investor confidence.

3. Not a "scourge" for Tesla's big price reduction, the domestic media are full of "sadness", believing that a price war for domestic new energy vehicles is imminent, which will deal a serious blow to the domestic new energy vehicle industry. It will even "take away" Xiaopeng, who had not sold well before. Even BYD, which leads the world in sales of new energy vehicles, is worried by the media that it cannot compete with Tesla's price war.

Is that true?

At present, it seems that in the Chinese market, the price of Tesla's main model Model3 has dropped to 229900-329900, and the price of ModelY has dropped to 259900-359900. What competes with it is the new energy models with the 200000-300000 price belt in China, which mainly include Xiaopeng P7, G9, polar krypton 001, BYD Han and seals, M5 and M7 and so on.

However, from the perspective of the industry situation, it is not so much that Tesla has squeezed domestic car companies, it is better to say that the internal volume of domestic car companies in the market of less than 300000 yuan, so that Tesla has to rely on price cuts to survive. Tesla's sales grew 35 per cent month-on-month in the third quarter of 2022, lower than those of car companies such as BYD, GAC Ian and Geely, which grew 48 per cent, 42 per cent and 77 per cent respectively over the same period, according to the 21st Century Economic report.

China's new energy automobile regiment has formed an encirclement war against Tesla. Around Model3 alone, domestic car companies have launched a P7 based on young and good-looking, a business sense of Han, a more dynamic seal, a more cost-effective dark blue, and a more comprehensive C11. Compared with the new models launched by domestic car companies, Tesla's Model3 was launched in 2016 and the product cycle has been as long as six years. On the other hand, the models of domestic car companies are updated and iterated quickly, and Tesla has been surrounded by each subdivided track.

Therefore, in the face of Tesla's price reduction, there are not many domestic car companies to fight, only ask the boundary and Xiaopeng to follow the price reduction.

On January 13, AITO announced a price reduction, starting from 259800 yuan for M5EV and 289800 yuan for M7, with a price reduction of 30, 000 yuan for two models. On January 17, Xiaopeng, who had not sold well, announced that the starting prices of G3i, P5 and P7 models had dropped to 148900, 1569 thousand and 209900 respectively, with a maximum drop of 36000 yuan.

After the price cut, Sun Shaojun, founder of car fans, posted on Weibo that the number of stores had not increased significantly. Ideal founder Li Xiang commented that products with low sales are not qualified to be competing products for others, and ideal L8 and L7 are Tesla's competitors. Ideal at present there is no news of price reduction. Two years ago, Li Bin said, "Tesla may only need more than a hundred thousand in the future." the first sentence was: "the principle that Weilai adheres to is not to reduce prices."

Not only Li Bin, as early as 2022, many research institutions have predicted that Tesla will reduce prices, and China's new energy car companies have also expected it for a long time. But the domestic mainstream new energy car companies are doing the opposite one after another-raising prices. Since the end of last year, BYD, Geely, Changan, Nezha, Dongfeng and other brands have announced price increases for some of their models. GAC Ean announced at the beginning of this year that it expects to raise the price of its models in early March, ranging from 3000 to 6000 yuan.

It can be seen that domestic car companies do not think that Tesla price reduction is a scourge. In terms of order volume, Tesla's orders in the Chinese market and even the global market are rapidly drying up. And BYD and other domestic car companies, most orders do not need to worry. In September 2022, it is reported that the backlog of BYD orders has reached 700000 vehicles, while its monthly production capacity is about 200000 vehicles, consumers have to wait three to six months to pick up the car, so the price increase is justified.

As early as 2021, Wang Chuanfu said at the China Automobile Chongqing Forum that technically, Chinese brands have surpassed in an all-round way. Whether it is modeling technology, or battery, motor, electric control and other new energy vehicle core technology, as well as intelligent technology such as intelligent network connection, intelligent cockpit, have comprehensively surpassed foreign-funded enterprises and led the development of new energy vehicles around the world.

The capital market is in line with Wang Chuanfu's view. Many research institutions believe that with the electric vehicle industry entering the fierce competition in the Red Sea, Tesla's scarcity quality is gradually disappearing. Such as battery life, vehicle safety, intelligent driving and other aspects of the competition, the advantages are no longer obvious, the majority of consumers also have more and more electric vehicles to choose from.

4. for some Chinese people, cars are not only a means of transportation, but also symbolize the identity and wealth level of car owners. Tesla's repeated price cuts seem to stimulate sales in the short term, but he is slowly losing his "advanced sense" halo.

When she first entered China, Tesla, like the previous iPhone, brought people a sense of advanced and superiority. However, unlike Apple's endless stream of new configurations and rising brand premium, Tesla's main model, the Model3, has been on the market for five years and has not been updated. Another major model, the ModelY, has been on the market for more than two years.

Although domestic new energy car companies lagged behind Tesla at the beginning, they made full use of the "advantage of backwardness" to dig deeper into consumer demand, and made a finer segmentation of the electric vehicle market through more accurate positioning, thus dividing part of the "cake" that originally belonged to Tesla.

Domestic new energy car companies do not hesitate to "pile up" locally, try their best to fill up the parameters and make the user experience appear on the market quickly, which has brought consumers a kind of "advanced sense" in terms of image and experience. Moreover, "Vidier" also continues to launch millions of high-end luxury models, enhance the brand strength, and then increase the premium.

Musk has another explanation for the price reduction: "even if you sell a car at a very low profit margin, but then upgrade it to a self-driving car, its value will be increased," that is, Tesla can make money from software even if he does not make money from hardware. Morgan Stanley believes that Tesla may end up making more profits by selling software subscription services than by selling hardware.

However, this is only a forward-looking prediction. At present, Tesla is obviously unable to rely on the profits of the software to maintain the basic operation. According to Tesla's financial report, Tesla's revenue from services and other businesses, including self-driving software, was $3.802 billion in 2021, an increase of 65% over the same period last year, but this part of revenue accounted for only 7.06% of its total revenue.

Also, is Tesla's intelligent driving level as advanced as everyone thinks?

In fact, not necessarily, except Wang Chuanfu said that "Chinese new energy vehicle brands have fully surpassed foreign enterprises in intelligent technologies such as intelligent Internet connection and intelligent cockpit". In an exclusive interview in 2022, Ding Lei, founder and CEO of Chinese Express High-tech Motor, which focuses on the future intelligent transportation industry, also said that in the era of new energy intelligence, Chinese cars can surpass foreign countries.

Gu Hongdi, vice chairman and president of Xiaopeng Automobile, said directly: "with the continuous promotion of the development of new energy vehicles in China, many brands in China have been ahead of Tesla in technology, car-building concept and hardware."

Foreign media MotorTrend published an article saying that Xiaopeng's intelligent auxiliary system is already comparable to Tesla. Tesla of the United States sets its core competence as FSD. At present, only more than 10% of car owners who buy Tesla choose to buy FSDbeta, and there are occasional negative failures. On the other hand, more than 84% of the car owners chose to use the high-speed NGP launched by Xiaopeng. Xiaopeng won the "most famous New car Brand of the year Award" in the results of the 2022 Automobile Index survey released by the authoritative Norwegian media organization AllerMedia.

Although domestic new energy car companies have developed well in the electrification stage, they have followed the development of European and American car companies such as Tesla; and in the intelligent second half that determines the outcome, domestic car companies not only have the tendency to surpass Tesla, but also walk out of the "Chinese road".

For example, in response to Bloomberg's senior anchor FrancineLacqua's question about whether Xiaopeng's intelligence can copy Tesla, Gu Hongdi made it clear that Xiaopeng's goal has never been to copy, but to surpass.

According to Automotive House iV-RATING intelligent car evaluation system, compared with Tesla, the performance of domestic brand cars is more eye-catching. In the list, the total score of Top3 is Chinese car companies, with 8 domestic cars in the top 10, while Tesla ModelY only ranks 16th out of 18 models.

Tu Yuan: now that Automobile House has entered the intelligent second half, instead of launching a price war with Tesla, domestic car companies should compete with Tesla in terms of intelligence, so as to overtake on the new energy vehicle track and catch up from behind.

Finally, if Tesla continues to reduce prices in the future, it will indeed promote its global sales performance in the short term, but it is very likely that the marginal effect is decreasing, and it is still good for domestic new energy vehicle enterprises, which can promote the popularization of smart cars all over the world and educate the market, thus driving the next sales of domestic smart cars.

[full text reference]

[1] "2022 Insight report on the Development trend of Intelligent vehicles in China", Automobile House Research Institute, 21st Century New Automobile Research Institute

[2] "Research report on the preservation rate of automobile value in China in December 2022", China Automobile Circulation Association and Jingzhen estimation

[3] "Tesla: willing but powerless 2022", 21st Century Economic report

[4] "Guangzhou second-hand car market now" does not accept the slogan Tesla, car dealers: collect an average loss of 30,000 to 40,000 ", watching the news.

[5] "opportunities for Chinese Automobile Brands in the Intelligent Age", Yuanchuan Research Institute

[6] "Tesla reduces the price just to live", titanium media

[7] "permeability continues to improve the speed of automobile intelligence than expected", China Automotive News

This article comes from the official account of Wechat: che Bai think Tank (ID:EV100_Plus). Author: Chen Zhongshan.

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