Tesla Led Price War affects Chinese Auto Stocks: Shares of major companies take a toll

Joane — Tue, 14 Mar 2023 14:33:04 +0000

The Electric Vehicle (EV) price war started by Tesla in China has now affected the entire auto industry as investors and traders are abandoning Chinese automobile stocks. Investors fear that the Chinese automobile market will not revive quickly enough and the ongoing price war will further reduce profitability.

China which is the world’s largest automobile market is going through a sluggish economy. The zero covid policy which led to periodic lockdowns combined with Beijing’s crackdown on industries and the real estate crisis all led to the economic downturn in China. The ongoing US-China trade war, rising inflation, and impending global recession have also made consumers cautious and reluctant to invest.

To get back consumer interest, revive the demand, and capture the market, automobile companies in China are slashing their vehicle prices which has led to a fall in Chinese Automobile stocks. Last week BYD stocks fell 11 percent in Hong Kong and 7.8 percent in Shenzhen. Shares of famous Chinese EV makers like Li Auto, Nio, and Xpeng fell up to 15% and SAIC recorded a 6.7% fall in Shanghai.

Automobile Price War in China:

To revive the sluggish demand for EVs, Tesla first slashed its price in October 2022. The company reduced the prices of Model 3 and Model Y by as much as 9.4%. A second round of price cuts happened in January when the company cut prices for all versions of its China-made Model 3 and Model Y. The base variant of model 3 has been reduced by 13.5% while the starting price for Model Y has been slashed by 10%.

Following the price cut, Tesla saw an increase in sales which then led BYD the world’s biggest EV maker to slash its price. The price war which started with Tesla and BYD affected many domestic and international players who then joined the battle. Last week, premium automobile companies like BMW and Mercedes and domestic companies like SAIC and Guangzhou Automobile reduced their vehicle prices in order to revive consumer demand.

Tesla reduced its prices somewhere between 6 to 13.5% and BYD reduced its price on the famous Dynasty series by up to 7% this year. However, the biggest discount was offered by the French automaker Citreon who slashed the price of its C6 model by almost 40%.

Wang Zheng, chief investment officer at Jingxi Investment said that the ongoing price war is a sign of weak consumer confidence. He further added that customers are not ready to spend as they expect a slow economic recovery. This in turn has caused investors to lose trust in the Chinese automobile industry.

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Tesla’s Price Reduction Strategy Pays OFF in China: Sales increase by 26% in February

Joane — Fri, 10 Mar 2023 04:48:48 +0000

Tesla has regained its footing in China thanks to its price reduction strategy. According to a report from the China Passenger Association, Tesla’s domestic retail sales showed an increase of almost 26% in February. Tesla’s Gigafactory Shanghai delivered a total of 74,402 EVs in February and the retail sales for last month stood at 33,923 units.

Experts have predicted that the company will see a steady increase in sales due to its price cut which has been somewhere between 6% to 13% in January alone. The company has slashed prices for all versions of its China-made Model 3 and Model Y. The starting price for Model 3 was slashed by 13.5% to 229,900 yuan ($33,515), while the starting price for Model Y was reduced by 10% to 259,900 yuan ($37,889).

Tesla has reduced its price twice since October 2022, to regain its market and boost its sales amidst a slowing demand and sluggish economy. The company cannot afford to lose the Chinese market as it is the world’s largest EV consumer and automobile market.

How did the price reduction help, Tesla?

Tesla received orders for 30,000 new EVs within just three days of slashing its price. The tier two and three cities showed a notable increase in demand after the second round of price cuts. In fact, some stores showed a 500% increase in sales after the price cut.

The price reductions were so significant that many existing Tesla owners protested against the company as they felt that they were given overpriced vehicles, the value of which would significantly reduce after the price cuts.

The demand for EVs in China has dwindled since last year owing to a number of reasons including the zero covid policy and a sluggish economy. Moreover, Beijing ended a 13-year-long subsidy for electric vehicle purchases on December 31, which has put additional pressure on EV makers. China’s EV market was once completely dominated by Tesla. But now the company faces stiff competition from domestic players like Nio, BYD, Xpeng, and more.

All these reasons led the company to significantly reduce its EV price. Experts have predicted a potential price war as EV makers fight for a share of the market. However, in the short term, the price reduction seems to pay off as Tesla sees an increase in its sales.

(source)

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Tesla Led Price War affects Chinese Auto Stocks: Shares of major companies take a toll

Automobile Price War in China:

Tesla’s Price Reduction Strategy Pays OFF in China: Sales increase by 26% in February

How did the price reduction help, Tesla?