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Nio Group (NIO.US; 9866.HK), often lauded for its advanced electric vehicles, found itself in an unprecedented position last week when it announced a 30,000-yuan price cut on its entire range of electric vehicles. After the Yuan Dynasty, he became the object of ridicule by netizens. Just two months ago, Nio CEO Li Bin claimed that he would definitely not join the price war that is currently killing the industry, saying such blind price cuts would only lead to “vicious competition”.
Nio’s shift underscores the struggles Chinese electric car makers are currently facing as they try to navigate an unexpected transition that analysts say is likely to last for some time. Smaller companies are in the toughest position, as further price cuts eat into their already thin margins. But refusing to play the price-cutting game risks losing sales to industry giants such as BYD (1211.HK; 002594.SZ) and Tesla (TSLA.US).
We’ll see later how the recent price war has affected companies including Li Auto (LI.US; 2015.HK), Leap Motors (9863.HK) and Xpeng Motors (XPEV.US; 9868.HK), as well as Ma Auto, these small Chinese electric car companies. But first, we’re going to take a step back and look at how this price war, which has been going on for months, has evolved.
It all started in October last year, when Tesla cut the prices of its Model 3 and Model Y by up to 9%, and further cut prices in January this year, with a maximum drop of 13.5%. The two rounds of price cuts prompted other companies to follow suit, with Xpeng Motors announcing price cuts of up to 13 percent on the G3i SUV and P5 and P7 sedans in January. BYD joined in the next month, and the price of the 2021-style “Han EV” model was reduced by 20,000 yuan in Beijing, and the price of the 2021-style “Qin EV” model was reduced by 15,000 yuan.
Other brands, ranging from domestic giants such as GAC, SAIC, and FAW, to foreign brands such as Ford, Volkswagen, BMW, and Toyota, have also joined the bloody battle. The price cuts came after the Chinese government late last year scrapped a major EV purchase incentive program that had helped the industry double sales by 2022.
This price war later spread to the field of fuel vehicles, and major car companies are eager to clear their inventories before a set of strict new emission standards take effect in July.
According to domestic media Yicai Global, citing data from a third-party consulting company Ries Strategic Positioning Consulting, as of the end of March, more than 40 auto brands have been involved in the price war, offering subsidies or price reductions for electric vehicles and fuel vehicles. Another domestic news outlet, Pinwan, cited data compiled by research firm China Auto Market as saying that as price cuts intensified, about 20% of passenger cars sold in China were discounted to 10,000 yuan or more.
promote integration
The price war has shown signs of driving consolidation in a crowded industry whose growth has been largely fueled by strong government incentives that are now being quickly withdrawn.
As the price war continues, big players are gaining ground as leaders, while smaller players face sluggish sales. According to data from the China Passenger Car Market Information Association (CPCA), in the first four months of this year, the three companies, BYD, Tesla and GAC Aian, accounted for 50.1% of the pure electric vehicle market. 42.7% higher than the same period last year. BYD led the way with a market share of 24.9%, a year-on-year increase of 7.4 percentage points.
As big brands gain more market share, many smaller brands keep losing market. Xiaopeng Motors is representative of this group, and it dropped out of the top 10 rankings of electric vehicle manufacturers in the first four months of this year, which is quite symbolic. NIO’s market share increased by 0.3 percentage points, but its 27.1% increase in vehicle deliveries still lagged far behind BYD and Tesla, which both recorded year-on-year growth of more than 60%.
Faced with slowing growth, it is not surprising that NIO has joined the price war. But whether the move will significantly boost its sales remains to be seen.
Xiaopeng’s experience is the opposite. The company’s sharp price cuts in January failed to boost sales, and total vehicle deliveries actually fell 47.3% in the first three months of the year.
Leap Motor, another smaller electric car startup, also reported similarly dismal results after it rolled out steep price cuts. The company’s vehicle deliveries fell 51.3% to 10,509 vehicles in the first quarter, according to its latest quarterly report.
Not all smaller businesses have been affected. In the intensifying price war, Li Auto is the last stand-by – it delivered 52,584 vehicles in the first quarter, a year-on-year increase of 65.8%. The company also recorded a net profit of 934 million yuan during the period, making it one of the few EV makers to be profitable. BYD and Tesla all posted profits during the period, while Nio, Xpeng and Leap Motors all posted losses.
The poor performance of smaller companies is also reflected in the fact that their profit margins lag far behind their larger peers. The gross profit margins of Weilai, Xiaopeng and Leapao in the first quarter were all lower than 2%, far lower than BYD’s 17.9% and Tesla’s higher figure of 19.3%.
Which brings us back to the predicament now facing smaller companies, which will find it increasingly difficult to wage a long-term price war that would drain their dwindling cash reserves, and skeptical investors, less likely to New funding may be available. As of the end of March, Nio’s cash shrank to 37.8 billion yuan from 45.5 billion yuan three months ago, while Xiaopeng’s cash fell from 38 billion yuan to 34 billion yuan in the same period. If the price war persists, the reduction in cash may continue, or even accelerate.
The price war has already brought some of the smallest major EV makers to the brink of bankruptcy. One such company is WM Motor, a once ambitious company that is now facing financial distress. According to reports, it slashed employee wages and laid off employees on a large scale at the end of last year and in 2023. According to data from CPCA, WM Motor sold only 457 vehicles in the first two months of 2023, a year-on-year decrease of 92.4%.
(The author Xi Yiyang, this article only represents personal views)