Author: Winslow

Based on the recent growth rate of electric vehicle market penetration and Tesla’s sales growth trend, it seems that Tesla is facing fierce competition in the Chinese market. My followers who pay attention to my quarterly sales and financial report articles may have seen the analysis of Tesla’s seemingly slowing sales growth at the end of last year.

Q3 2021 Delivery Analysis in China (excerpt from last year’s original text):

“…In September, the BEV penetration rate in China reached about 14% (including hybrids and extended-range vehicles, the penetration rate was about 18%) – at the beginning of the year, the penetration rate was only 6.4%, showing a rapid growth in the market.

As the BEV penetration rate in China increases rapidly, it is understandable that Tesla’s market share has decreased to some extent due to the need to deliver domestically and export, while still balancing both ends. However, at least it demonstrates another trend, namely that Tesla is no longer the locomotive that drives the growth of Chinese BEVs over the past six months.

Tesla should strive to hold onto China’s core market and the largest market for globally distributed BEVs.

With Tesla’s Berlin factory completed, which solves a major bottleneck in Europe’s supply, Tesla’s market share in China should stabilize at least, and even rebound. If it stabilizes, it means that Tesla’s local delivery growth will keep pace with China’s BEV’s penetration growth, maintaining the same pace of growth. If it rebounds, it means that Tesla has once again become the locomotive, leading BEVs to launch a new round of penetration into internal combustion engine cars (ICE). Tesla’s imagination space in China will be broader.

Behind Tesla’s Q3 sales halo, there are also hidden worries. Behind the flowers and applause, there needs to be eight-tenths of vigilance.” (Source: 2021Q3: Short Review – Tesla Production / Delivery Volume)

Based on the data and understanding of the competition in the electric vehicle market last year, the above analysis was the most reasonable one I could make at the time. This year, with an updated understanding of the competition, I looked back and realized that my previous conclusion was too general and had a wider impact, without taking context into account to understand the competition, so it may not have guiding significance. Therefore, although it was a correct conclusion, the analysis process may have been wrong, and it was just luck.

So, let’s take a look at how to approach Tesla’s competition issue in China. Since we are analyzing a competitive issue, the first thing is to find competitors. Then, use market share as a measure to see how Tesla is doing and how other models are doing.

However, we encounter the first problem here. The dimensions, configurations, and qualities of various car models on the market are different, making it difficult to find a perfect way to divide competitors. Perhaps, differentiating based on price ranges is a suboptimal best solution. In other words, defaulting to a transparent and fully competitive market, information such as size, configuration, and quality are reflected in the price, and models in the same price range compete with each other.

Therefore, for the first three quarters of 2022, we divided them, according to the different price ranges (proportions of new car sales), as follows: below 50,000 (5%), 50,000-150,000 (52%), 150,000-250,000 (25%), 250,000-350,000 (12%), and above 350,000 (6%). There are a total of five ranges, accounting for 100%.

Tesla’s average unit price in China is 290,000, which belongs to the 250,000-350,000 price range.

As for the new car sales data for the first three quarters of 2022, they are 5.44 million, 4.73 million, and 6.53 million respectively. Therefore, the new car sales in the 250,000-350,000 (12%) range correspond to 650,000, 570,000, and 780,000 respectively. Combining this with Tesla’s quarterly sales data of 108,000, 89,000, and 126,000 respectively, we get market share for each of the first three quarters, which are 16.6%, 15.6%, and 16.1% respectively. It seems that there is not much change.

Then, we can use the same method to pull out the data for the entire year of 2021. Tesla’s market share in the same price range was 12.6% for the year. In comparison, it actually increased in 2022, reflecting the improvement of Tesla’s product competitiveness. However, this only reflects Tesla’s competitiveness in all passenger car markets, indicating that Tesla is more attractive than gasoline vehicles at the same price.

So, how does Tesla’s competitiveness in new energy vehicle products compare to those in the same price range?

Using the same method as above for the annual data of 2021 and the first three quarters of 2022, we divided them into different price ranges (proportions of new energy vehicle sales) as follows: below 50,000 (3.1% in 2021, 4% in the first three quarters of 2022), 50,000-150,000 (5.7%, 10%), 150,000-250,000 (5.5%, 10%), 250,000-350,000 (3.4%, 5%), and above 350,000 (0.9%, 1.4%). There are a total of five ranges (accounting for 18.6%, 30.4% of new energy vehicle penetration).# Translation

In 2021 and the first three quarters of 2022 combined, Tesla’s market share in the same price range of new energy vehicles was 45% and 39%, respectively. This reflects that Tesla’s competitiveness in the same price range of new energy vehicles has weakened in China.

However, it is still a decent achievement to occupy nearly 40% of the same price range and maintain it for two years, especially considering that it was achieved under the premise that there were no significant updates to Model 3/Y during these two years.

From these data, we can further analyze that in the price range below 50,000 yuan (the proportion of sales of new energy vehicles increased by 29% from 2021 to the first three quarters of 2022), from 50,000 to 150,000 yuan (increased by 75%), from 150,000 to 250,000 yuan (increased by 81%), from 250,000 to 350,000 yuan (increased by 47%), and above 350,000 yuan (increased by 55%).

Combining the analyses of the three aspects mentioned above, we may draw a tentative conclusion:

1. Tesla currently mainly achieves sales growth by encroaching on the market of traditional fuel vehicles. However, Tesla’s speed of encroachment (YoY increase ~ 26%) is far behind that of the entire new energy vehicle industry encroaching on fuel vehicles (YoY increase ~ 63%);

2. Tesla’s competitive advantage is no longer far ahead in the same price range of products. A major update is expected to be launched by mid-2022 at the latest to reverse this trend;

3. The price range that Tesla currently occupies is not the leading force in the impact of new energy vehicles on traditional fuel vehicles. The 50,000-150,000 yuan and 150,000-250,000 yuan price ranges are the main forces;

4. If Tesla wants to keep up with the increasing penetration rate of new energy vehicles, it needs to offer products in the main force price range. If a completely new model is not launched, it will be difficult to organize an effective offensive, and the starting price of this model should be between 150,000 and 200,000 yuan.

If we want to draw more accurate conclusions (although there are too many assumptions and it is likely to be wrong):

1. If Tesla can conduct a major product update in 2023, raising its market share in the 250,000 to 350,000 yuan price range to 55% (its market share in 2022 is 39% and it sold nearly 470,000 units domestically), and at the same time, increasing the penetration rate of new energy vehicles to 40%. Then in 2023, Model 3/Y is expected to sell nearly 700,000 units domestically, and its sales growth rate in the region can still maintain a growth rate of 50%. However, it will be relatively difficult to maintain the same growth rate every year after that. Since China accounts for nearly half of the world’s new energy vehicle sales, Tesla’s sales growth target of 50% annually will be greatly affected by the sales growth rate in the Chinese region.2、而如果特斯拉能 2023 年够在保持毛利率的前提下推出一款 20 万以下的新车型，特斯拉将可以切入一个全新的价格区间（15-25 万），这个市场明年总容量近 340 万辆新能源车。若能拿到其中 10%、20% 的市占率，则可以获得 34 万辆、68 万辆的销量。在这种情况下，达成特斯拉长远的年增长销量目标又似乎不在话下了。

留给特斯拉的时间不多了，接下来必须重拳出击来迎接中国市场激烈的竞争。

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.