Author: Rui-Chen Zhang
Editor: Xian-Zhi Wu
With the price reduction of Tesla, many industry insiders believe that a new round of price reduction of new energy vehicles is about to begin.
Currently, Model Y and Model 3 are the most popular Tesla models in China. Based on Tesla’s past price adjustments, insiders explained that Tesla’s pricing changes according to the product lifecycle and market conditions, due to the direct sales model adopted by Tesla.
The main reason for Tesla’s price reduction may be that its orders did not meet the expected target. Tesla’s original target was to complete 1.5 million global deliveries in 2022. In the first three quarters of 2022, Tesla delivered 310,000, 255,000, and 343,000 new cars, respectively, with a cumulative delivery of 908,000.
In other words, in order to achieve the target of 1.5 million deliveries, it is necessary to take the measure of price reduction and achieve nearly 600,000 deliveries in the fourth quarter.
Before this price reduction, Tesla had already indirectly released signals. For example, in September of this year, the production line upgrade project of Tesla’s Shanghai Super Factory was completed, and the vehicle delivery cycle is expected to be greatly shortened.
In addition, the increasingly fierce competition among domestic new energy vehicle brands has also forced some brands to “exchange price for quantity”, which can bring considerable profits to automobile companies under the low-profit and high-sales mode.Tesla officials responded by saying that Tesla China will continue to provide consumers with better products and services, breaking the pricing logic of international brands so that every consumer can buy higher-quality products at a fair price.
At the Q3 financial report conference, Musk revealed that Tesla is developing a cheaper next-generation car platform. The cost of the new car will be half of the Model 3, but its production may be higher than the total production of all products. The more popular Tesla Model Q will soon enter the Chinese market.
If Tesla really achieves a production cost that is half of the Model 3, based on the gross profit margin of the Model 3 and the $24,990 reported by foreign media in the above image, the price of the next-generation new car is expected to be in the range of 160,000-200,000 yuan. This will create unprecedented pressure for domestic new energy companies.
Direct competitors include new forces and first-tier mainstream car companies such as WmAuto, BYD, Geely, and Changan, which may compete positively with it.
After this price cut, the starting price for Tesla is over 300,000 yuan. The full range price for the Tesla Model 3 after the price cut is 265,900-349,900 yuan, and the full range price for the Tesla Model Y after the price cut is 288,900-397,900 yuan.So which competing car models will be most affected? First, we can think of the BYD Dolphin that directly competes with the Model 3, and the WEY M5 that competes with the Model Y. Secondly, other models priced under 400,000 yuan (~$60,000) like the Xtal KE 001, Xpeng P7, Voyah FREE, BYD Han, Ideal L8, and NIO ET5 will also be affected to some extent, just to varying degrees.
Compared to BYD, WEY, Xpeng, Xtal and Voyah who will face direct competition from Tesla, NIO and Ideal will be less affected due to their higher overall selling prices and less overlap with Tesla’s target market.
With Tesla’s price cuts on October 24, the first company to respond was AITO WEY.
AITO WEY is a new energy car brand created jointly by Huawei and Silk-FAW.
The AITO WEY series has three models: the extended range WEY M5, WEY M7 and the just-released all-electric WEY M5, which is priced between 259,800 yuan and 331,800 yuan.
They are sold in Huawei’s offline channels, and every WEY car is personally endorsed by Huawei’s Executive Director, Consumer Business CEO, and CEO of Huawei’s Intelligent Automotive Solutions BU, Richard Yu.
According to a sales store for AITO WEY cars which is a cooperative between Huawei and Silk-FAW, both the M5 and M7 models have begun to offer sales discounts, with 8,000 yuan directly deducted from the final payment.
From WEY’s rapid response, we can see the fierce competition in the current new energy vehicle field. We wonder which brand will be next to follow suit? We believe that WEY is only the first to respond and will not be the last.The actions of Wanjie (NIO) confirm the “price reduction for volume” idea in China’s new energy vehicle market. Under the pressure of Tesla’s price reduction, ensuring sales is the key. This heralds a possible new round of industry-wide price cuts in the coming months, accelerating China’s new energy penetration rate from 30% to 50%. If you are considering purchasing a new energy vehicle, you may want to wait a bit longer.
This article is a translation by ChatGPT of a Chinese report from 42HOW. If you have any questions about it, please email bd@42how.com.