According to NIO’s CEO, William Li (Li Bin), Tesla has little influence over EV prices in China, unlike in the US, where it dominates the market.
NIO CEO says Tesla can’t influence EV prices in China
After Tesla slashed prices on some of its most popular models in January, including the Model 3 and Model Y, by up to $7,000, it sent shockwaves through the industry as many EV makers cut prices to compete.
Citi analyst Jeff Chung said Tesla’s price cuts “created a negative spillover effect where a lot of China EV brands’ order backlog has suffered significant order cancellations” after contacting dealers.
According to Yicai Global, over 40% of EV and ICE brands, including BYD, have offered discounts or subsidies since then. XPeng, another EV startup, was one of those, following up with its own round of price cuts, offering up to $5,300 off its most popular models, suggesting softening demand.
Unlike some of its peers, Shanghai-based EV maker NIO will not partake in the EV price wars, according to CEO Li Bin. Li said at an industry conference recently that blindly cutting prices will create ruthless competition in China, adding that NIO’s gross margins are too low right now as they scale production to take part.
According to Li, the Tesla “Model 3 and Model Y are less complex in functions and configurations compared to Chinese car brands, such as BYD, so it cuts prices to challenge its rivals.” He added:
Tesla can fix vehicle prices in the US with a market share of over 60 percent, but not in China, where it holds only about 7 percent.
NIO had back-to-back record quarters in Q3 and Q4 to finish out 2022. The NIO ET5 outperformed China’s most popular gas models and became the second best-selling model in China this January among all mid-size sedans priced at over RMB 300,000.
However, rising lithium prices and vehicle upgrades have caused NIO’s gross margins to fall from 18.9% last year to 13.7% in the fourth quarter of 2022.
Li is confident the EV maker will get back on track, reiterating that NIO’s gross margins will be between 18% and 20% during Q4 2023 as the company scales operations.
Nio delivered 122,000 EVs last year, up 24% from 2021, with shipments rising over 20% in the first three months of 2022 year-over-year.
Meanwhile, in the US, Tesla does have pricing power. The EV leader released Q1 delivery and production numbers Monday, showing the company beat expectations by delivering a record 422,875 vehicles, further expanding the gap in the US EV industry.
Tesla leader Elon Musk has said he wants the company to “become the best manufacturer in the world” and believes it is Tesla’s strongest competitive advantage. The efficiency is paying off, with gross margins climbing to 25.6%, among the highest in the industry.