Markdown Translation

Author: Cao Jiangbei

As the end of the year approaches, a wave of price cuts has hit the new energy vehicle market.

(Below is for those who want to take advantage of the situation)

On October 24th, Tesla announced that the starting prices for five versions of the Tesla Model 3 and Model Y in mainland China would be lowered, with the starting prices for the two models reaching 265,900 yuan and 288,900 yuan respectively, and the maximum discount for the five versions reaching 37,000 yuan.

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Shortly after, there were reports on the internet that AITO Qianjie’s M5 and M7 models under the AITO Qianjie brand can be directly reduced by 8,000 yuan when paying the final payment. Huawei responded to this false rumor by saying, “Starting from the early morning of October 24th, we cancelled the original financial subsidy, differentiated gifts at various sales outlets, and will provide insurance worth 8,000 yuan for some purchases of cars in stock.”

On October 31st, Ford’s electric vehicle business unit in China officially announced that from that day, the price of all domestically produced Ford electric horse Mustang Mach-E models would be adjusted, with a price cut of between 20,000 and 28,000 yuan. The post-reduction price range is between 249,900 and 369,900 yuan.

On November 15th, Mercedes-Benz announced a recommended retail price cut for some of its EQ pure electric vehicle models. Among them, the three models of the Mercedes-Benz EQE were priced between 500,000 and 507,000 yuan, and the adjusted post-reduction price is between 4.78 million and 5.343 million yuan. The four models of the EQS were priced between 204,600 and 237,600 yuan, and the adjusted post-reduction price range is between 845,000 and 1.314 million yuan. Both models of the AMG EQS 53 are being sold with a direct discount of 198,600 yuan, with a current price of 1.486 million to 1.547 million yuan. At the same time, Mercedes-Benz stated that it will provide an exclusive subsidy program for old car owners who purchase the above reduced-price models before November 16, 2022, based on the difference between the purchase invoice amount and the manufacturer’s recommended retail price after this adjustment.

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On the same day, there were reports that XPeng Motors had reduced prices for several models, including G3i, P5, and P7, by ¥14,000 to ¥20,000, except for the latest model G9. Although XPeng Motors responded quickly by saying that it was only adjusting its equity structure, the market believes that this indirectly confirms the price reduction.

Remember the price hike in the first quarter of this year, in which almost all new energy vehicle companies actively participated? Why, in just half a year, has the sales price system been shattered at a speed almost as fast as an idol falling down? Is it really like what a new energy vehicle executive of a certain domestic carmaker said in a media report: “We are not losing money selling cars this year, and next year we won’t even have the opportunity to lose money selling cars”?

According to a report from “First Financial Daily,” in the first three quarters of this year, residents’ deposits in China increased significantly. The report analyzed that while residents increased their preventive savings, more incremental assets were transferred from real estate to time deposits, which is an active adjustment of household asset structures.

In mid-September of this year, the six major state-owned banks (ICBC, ABC, BOC, CCB, Bank of Communications, and Postal Savings Bank of China), and China Merchants Bank collectively lowered the RMB deposit ceiling rates. Whether it is a demand deposit or a time deposit, the interest rate has been lowered, with the three-year time deposit interest rate having the biggest decrease. After the policy was announced, a group of experts analyzed that the policy aimed to further stimulate consumption and inject vitality into the economy.

However, from the launch of the policy to its implementation and effectiveness, a transitional period is necessary. During this transitional period, to some extent, it can be regarded as a vacuum period of bulk consumer spending, including that for new energy vehicles.

This means that under the backdrop of the increasing number of cars per thousand people in our country, the sluggish consumption factors restrict new energy vehicle companies, which still have to rely on snatching opportunities to gain more sales in the automobile stock market.Aside from the marketing tactics that require educational cycles such as three-electric technology and intelligent level, price reduction may be the only effective means.

Taking Tesla as an example, the rear-wheel drive version of Model Y has returned to a price below 300,000 yuan after a new round of price adjustments. This means that owners who purchase this model at this time can enjoy more than 11,000 yuan of the 2022 national new energy vehicle subsidy, and save 28,000 yuan less than before the price reduction. The direct and obvious stimulus to the consumer market by the price reduction can be seen from the fact that after the news of the price reduction by Tesla was announced, order volumes in Beijing had exceeded one thousand units in just one morning, and the trend of out-of-stock situations continued to rise.

Another important reason that has caused various new energy vehicle companies to reduce prices is related to the inventory pressure brought about by excess capacity. According to the latest issue of the “China Automobile Dealership Inventory Alert Index Survey” released by the China Automobile Circulation Association, in October, the inventory alert index of China’s automobile dealers was 59.0%, a year-on-year increase of 6.5 percentage points and a month-on-month increase of 3.8 percentage points. This shows that dealers’ stocks were under pressure in October and terminal sales fell short of expectations.

However, it should be clear that price reduction itself is not the original sin, but rather the omission of customers’ respect and the feeling of being “harvested” that customers perceive. After all, price stabilisation has a close relationship with customers’ trust in the brand. No customer hopes that when they open their phone the next day, they will be flooded with the news of the adjustment of the new car’s official price, which they themselves had just mentioned.

Since this is the case, is it feasible to avoid price reductions? Yes and no.

The former is based on the high manufacturing cost of new energy vehicles. From the perspective of the cost of manufacturing power batteries alone, according to Shengyi Data, as of November 15th, the price of battery-grade lithium carbonate was 587,000 yuan per ton, which has increased by 120% since the beginning of this year, and is 10 times higher than the 53,000 yuan per ton in early 2021.

The latter is because if the brand’s “chasing and surpassing” cannot be achieved through price reductions, it will be difficult to achieve the sales target set early in the year. For example, relevant data shows that in October this year, the domestic sales of the Mercedes-Benz EQE only reached 678 units, while EQE, EQA, EQB, and EQC accumulated sales in the first ten months were less than 12,000 units.Between doing and not doing, choosing the latter is understandable. Though it’s clear that proactive price cuts can lead to loss-making business and deviate from the original commercial intent, not cutting prices means losing the opportunity to expand market share.

So, why not lower the price outright? Besides, traditional fuel car companies have been doing this for many years.

Then, how to lower the price scientifically?

At the very least, new energy vehicle companies need to give consumers a buffer period from a business perspective. This buffer period can be a price guarantee before a price cut or a compensation policy after a price cut, similar to what Mercedes-Benz has offered. In terms of sales training, companies must also standardize their internal language and avoid promises like “there will be no new models introduced this year.” Furthermore, it is clear that even in the era of “software-defined cars,” new energy vehicle companies need to articulate that cars cannot fundamentally copy the iteration speed of phones. Otherwise, behind those red orders are loyal consumers who have been sacrificed.

In short, being honest with consumers will be rewarded with loyalty.

In fact, whether it’s price cuts or price hikes, they all follow the market’s law of supply and demand. It’s like bargaining at a vegetable market. After a little bargaining, the vendor will say, “If you really want it, I’ll sell it to you cheaper.”

If car companies take the initiative to lower prices, will you really consider buying a new energy vehicle?

Given that brand awareness is gradually increasing, user loyalty is steadily growing, and latent customer purchase intentions are at a high level, the answer is probably yes. Regardless of whether they are affected by a price cut trend.

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.