Tesla announces a 50% discount in China, much competition to the price war that is currently going on. The sequence of events began in October when Tesla, a significant player in the hyper-competitive Chinese market, lowered the prices of models produced at its expansive factory situated on the outskirts of Shanghai. Matters escalated in January, with an additional price reduction that left Tesla’s domestically-manufactured vehicles up to 14% less expensive than the previous year, and in certain cases, nearly 50% cheaper than their counterparts in the US and Europe.
As a result of Tesla’s price reductions, competitors, including local startups like Xpeng Inc. and Nio Inc. as well as leading international brands such as Volkswagen AG and Mercedes-Benz Group AG, had little choice but to offer discounts of up to 70,000 yuan ($10,000). Ford Motor Co.’s Mach-E electric SUV now has a starting price of 209,900 yuan, approximately one-third cheaper than in the US. “Tesla created havoc for the rest of the market,” according to Jochen Siebert, managing director of JSC Automotive, a consultancy with offices in Shanghai and Stuttgart.
According to Bloomberg News and local media, at least 30 other automakers have lowered their prices as well. The China Association of Automobile Manufacturers, on the other hand, called for an end to the price war on Wednesday, claiming that it was not a long-term solution to sales slowdowns and inventory build-ups and that the industry must “return to normal operation” to ensure healthy development.
Electrification
State media commentaries this week suggested that regional governments offering subsidies on locally produced vehicles was improper. One example of this was Hubei province and state-backed Dongfeng Motor Group Co., which reduced prices by up to 90,000 yuan, or nearly 40%, on Citroen C6 models. This comes after a tough period for China’s auto industry, with consumer spending suffering due to long-standing Covid restrictions and sales being affected by the removal of state subsidies for EV purchases at the end of last year. Supply chain disruptions have also impacted industries globally. Despite these challenges and an economic slowdown, retail sales of new energy vehicles, including fully electric and plug-in hybrids, almost doubled to 5.67 million last year, with BYD Co. accounting for around 30% of those. In November, Tesla shipped a monthly record of over 100,000 EVs from Shanghai.
According to Nio Chief Financial Officer Steven Feng, as EV adoption grows, China’s auto market is undergoing “a very profound reshuffle.” In an interview with Bloomberg Television on Wednesday, he stated that “we need to go through this price war at the beginning of the year, and then we expect the industry to go through some profound fundamental consolidation. It’s almost consensus that China now has too many automakers.”
