Author: Xu Jinkai

Tesla has finally lowered the prices of new energy vehicles!

On January 13th, the AITO brand announced that starting from 08:30 on January 13th, 2023, some models of the AITO series will bring new prices and some models will be reduced in price.

This is another brand to conduct an “official price reduction” after Tesla reduced prices and RisingAuto launched a limited-time promotion.

As AITO’s prices continue to fall, it is not uncommon for other automakers to follow suit and lower their official guidance prices.

The new year has just arrived in 2023, and a new round of fierce competition has been launched in the new energy vehicle market. This is not friendly to many newly established brands. How to adjust the brand’s development strategy in time will test the wisdom of many leadership teams.

Feedback while reducing prices, AITO refuses to become Tesla

In the new prices released by the AITO brand:

• M5 EV rear-wheel drive standard version RMB 259,800 (reduced by RMB 28,800);

• M5 EV four-wheel drive performance version RMB 289,800 (reduced by RMB 30,000);

• M7 Comfort Edition RMB 289,800 (reduced by RMB 30,000);

• M7 Luxury Edition RMB 309,800 (reduced by RMB 30,000).

The AITO M5 EV adjusted starting price is 259,800 yuan, and the pure electric rear-wheel drive standard version remains at 259,800 yuan. The pure electric four-wheel drive performance version is 289,800 yuan (previously 294,800 yuan, a decrease of 5,000 yuan).

The AITO M7 adjusted starting price is 289,800 yuan, the comfort version is 289,800 yuan (previously 319,800 yuan), and the luxury version is 309,800 yuan (previously 339,800 yuan).

The AITO M5 extended range version and the AITO M7 flagship version were not included in this price reduction event.

In order to avoid “Tesla-style price reductions” causing rights protection events for old car owners, AITO brand has also launched feedback work for old car owners.The discounted models of the Wanjie M5 EV and Wanjie M7 will provide benefits worth 33,000-35,000 RMB to the first car owners, including:

• An extended whole vehicle warranty up to 8 years/160,000 KM worth 21,000-23,000 RMB;
• 120,000 AITO Points worth 12,000 RMB; these points can be used to purchase Huawei products and peripherals in the AITO Mall.
• Wanjie M5 owners can enjoy 2 years of basic maintenance.

According to sales performance, the overall sales volume of the Wanjie series models was 75,000 units last year, including:

• Nearly 49,000 units of Wanjie M5 PHEV;
• Less than 10,000 units of M5 EV;
• Approximately 21,000 units of Wanjie M7.

Roughly speaking, about 30,000 owners will be affected by this discounted promotion, with subsidies of approximately 1 billion RMB provided to these owners. Such a substantial financial investment can help soothe owners, avoid rights protection incidents.

In the past year, raw material prices have risen, and the new energy industry has experienced a general phenomenon of price increases. With the withdrawal of new energy subsidies this year, some brands have also made corresponding price adjustments. Against this backdrop, Tesla’s significant price cuts have caused a huge industry response, and whether new energy vehicle prices should rise or fall has become a hotly debated topic within the industry.

Wanjie joining the ranks of price reduction may lead to other brands following suit. After all, in the context of some brands raising prices, price reductions can not only allow car owners to enjoy real benefits but also plan a series of highly penetrating marketing events, promote many potential customers to place orders and thereby improve the overall brand’s market performance.

However, not all brands have the initiative to reduce prices. Adjusting the price of a car model involves many issues, such as raw material prices, sales scale, brand positioning, and customer retention, which require brands to consider comprehensively.From the perspective of raw material prices, the decline in battery costs may increase the likelihood of car companies lowering their prices.

According to Shanghai Steel Union data, the average price of battery-grade lithium carbonate has fallen by 10,000 yuan/tonne, and the current average price is 49.25 million yuan/tonne, breaking the 50 million yuan threshold.

In response, BYD said: “It is still unclear whether the price of lithium carbonate will continue to fall, but the long-term trend is downward.”

This is consistent with the views of Chen Shihua, deputy secretary-general of the China Association of Automobile Manufacturers. He said, “Recently, the prices of raw materials have fallen from their highs, and it is expected that they may remain relatively high in the first half of the year. However, in the second half of 2023, the price of raw materials for power batteries will fall, which will alleviate the cost pressure on new energy vehicle companies.”

In terms of sales volume, many car companies are still in the early stages of brand development, and it is difficult to form economies of scale.

Generally speaking, an annual sales volume of 300,000 vehicles is the threshold for the automotive industry to achieve economies of scale. Car companies with annual sales volume exceeding 300,000 vehicles can basically achieve profitability.

In other words, for many new energy vehicle companies, a sales volume exceeding 300,000 vehicles is necessary to obtain better price reduction space. Currently, only BYD (1.8 million vehicles in 2022) and Aiways (271,000 vehicles) have the initiative to adjust prices based on this standard.

From a brand positioning perspective, price reduction not only damages the brand image, but also hurts the feelings of old car owners. For many companies that pursue high brand positioning, this is not a good choice.

For example, NIO, with a high positioning and a strong focus on user maintenance, Li Bin has repeatedly emphasized that NIO models will never reduce prices. The reduction of prices for Mercedes-Benz and BMW electric vehicles is also a last resort, after all, the dominant power of the new energy market is in the hands of Chinese brands.

From the perspective of customer maintenance, price reduction will cause dissatisfaction among old customers. Tesla being sued and AITO offering generous rewards to old car owners are the same principle.

For brands with small customer bases, reducing prices and rewarding old car owners is not a big issue. However, for brands with a large customer base, the pressure to appease old car owners will greatly limit their ability to adjust prices.

Considering these aspects, there seem to be few brands that can master price reduction, and in the context of the accelerating trend of smart electric vehicles, the R&D investment of major brands remains high. This status quo will also prompt many brands to be cautious in reducing prices.It is not difficult to see that for the current new energy industry, price reduction is not a positive option.

If more brands join the tide of price reduction, the new energy industry will open up a more incentive and disordered competitive pattern, which is not good news for many new brands in the growth stage.

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.