Tesla's lurching course in China: fierce competition depresses prices

Inhaltsverzeichnis

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This is the second installment of a series in which heise/Autos takes a look at the Chinese car market. There, Chinese electric car producers - some of them strongly supported by the so-called Communist Party - are just warming up in order to soon roll up the domestic and international markets with a lot of momentum and a colorful bouquet of state-of-the-art cars. This is likely to have consequences for German car manufacturers, whose largest single global market has been China for several years.

On the one hand, this will foreseeably change the picture on German and European roads, but it will also have repercussions for German producers and their sales in China, the world's largest single market.

Tesla has lowered prices in China. Again. This has angered around 200 customers to such an extent that they went to their dealer in Shanghai to hand over a list of demands. Accompanied by the local police. The background is that Tesla has experimented a lot with its pricing policy over the past twelve months. The latest price cut in early January 2023 was the second in three months. Buyers who had secured a supposed bargain as recently as the end of 2022 are now disappointed and demanding their money back. This is the climax for the time being of a competitive battle that is coming to a head.

China is becoming increasingly important for Tesla

China has become a guarantee of success for Tesla. The American manufacturer set a new company record with global sales of 1.31 million vehicles in 2022 (an increase of 40 percent). In November 2022, the Americans delivered 100,291 vehicles in the Far East alone. To be able to achieve these figures, Tesla had massively expanded and modernized its factory in Shanghai. There, the brand can now produce 750,000 vehicles annually.

The factory is even maturing into the brand's global standard. In November 2022, Tesla sent automation and control experts from Shanghai to Fremont (California/USA) to make the plant there more efficient. More and more Teslas from Shanghai are being exported. Most recently, according to Reuters, there were even rumors that the Chinese vehicles would also be delivered to the USA and Canada. Despite a tariff of 27.5 percent on passenger cars and 25 percent on light-duty trucks.

Success based on subsidies

Tesla's success to date is also due to the government's lavish subsidies for electric vehicles. In 2020, the purchase premium in China was the equivalent of 2130 euros (for a range of 300 to 400 kilometers), or 2960 euros (for a range of 400 kilometers or more). Added to this were protectionist policies, electric car quotas, and supportive measures from local governments - for example, lower taxes, free parking, or simplified registration. In 2020, no other manufacturer in China received as many subsidies as Tesla. According to an analysis by the China research institute Sinolytics, Elon Musk's brand received the equivalent of around 290 million euros from the Chinese government.

There were two changes for the year 2022. Firstly, the purchase premium fell to 1660 euros (or 2300 euros). Secondly, the money was only available for cars costing less than 40,000 euros. Tesla responded to the law change in January 2022 with a price increase. The brand made the Model 3 (by 1375 euros) and the Model Y (by 2900 euros) more expensive. The aim was probably to establish the brand as a premium brand and set it apart from the Chinese competition. Despite all the records and success stories, this tactic backfired.

In the second quarter of 2022, the Chinese brand BYD (Build your dreams) became the world's largest manufacturer of electric cars. Although it only has significant sales in China. Here, the brand has a market share of 29.3 percent in the EV segment. Tesla ranks at seven percent. Just for comparison, the two German-Chinese joint ventures SAIC-VW (1.8 percent) and FAW-VW (1.6 percent) rank 14th and 15th in the registration statistics.

Tesla corrects prices

Then, in October 2022, Tesla began to rethink and lowered the prices of the Model 3 and Model Y by five to ten percent. This made the vehicles eligible for the government's electric car subsidy again. Sales figures recovered again in November. Even at that time, however, there were rumors that Tesla was planning to cut prices again. In December 2022, sales then slumped by 44 percent. Customers preferred to wait for the next discount. Then in January 2023, prices actually fell again. A Model Y is now available in China for the equivalent of 35,700 euros. The Model 3 starts at 31,600 euros. The customers, who handed over a list of demands to Tesla in January 2023, had, according to their own statements, asked before the purchase whether further price reductions would be forthcoming. Which Tesla had denied.

The alleged export plans and the double price reduction are seen by analysts from China as a sign of dwindling orders and growing inventories. Elon Musk himself had spoken in October 2022 of "a kind of recession" in China and Europe. It was a cloistered forewarning for the fourth quarterly report. Which made it clear that the brand had missed the self-imposed target of a 50 percent increase in sales.

China's heavy Electric Vehicle market

For Tesla, the situation is aggravated by the fact that the market in China is currently slowing down at a high level. Last year, the battery-powered vehicle segment grew by 114  percent, according to the China Passenger Car Association (CPCA). Growth of "only" 30 percent is expected in 2023. From the current 6.4 million electric cars per year to 8.4 million in 2023. Experts also expect that it will be mainly Chinese manufacturers that will benefit. So BYD, Nio, Li Auto and Xpeng.

"Chinese consumers' preference for foreign car brands is history. About half of consumers in China believe that they don't need to pay more for an electric car from a foreign brand because of its high quality and performance. They are betting on emerging Chinese startups that make smart electric cars," analyzes Guan Mingyu in an interview with the South China Morning Post (SCMP). He is a partner at global management consulting firm McKinsey.

Perhaps this is why Elon Musk sides politically with the Communist Party. In October 2022, for example, a statement by the CEO went viral, according to which Taiwan should become a special administrative zone under Chinese rule. He made the suggestion in an interview with the Financial Times. He said he wanted to use it to prevent a severe slump in the global economy - after all, China could otherwise invade the independent country. Elon Musk is fully in line with the Communist Party, but ignores the will of most people in Taiwan.

Slowed growth

The slowdown in growth is partly due to the years of the central government's strict zero-covide strategy. In 2022, the People's Republic's economic growth (3.2  percent) did not exceed that of the global economy for the first time in 40  years. It is unlikely to be much different in 2023. Accordingly, many Chinese are being cautious when it comes to buying cars. Cheaper models are now much more popular. "Premium electric vehicle manufacturers are struggling to maintain their growth momentum this year, as Chinese drivers do not want to buy expensive vehicles," Eric Han, senior manager at consulting firm Suolei, makes clear to SCMP. Many BYD models are available for under 28,000  euros. The brand also supplies Tesla with its own batteries.

Mercedes responded to the situation in November 2022 and significantly reduced the prices for the EQE variants and the EQS. The EQE models have since been around 7000 euros cheaper and are now available from around 65,000 euros. The price reduction for the EQS was even more drastic. Customers have since saved up to 32,000  euros. It is now available in China from around 112,000  euros. There were no protests at Mercedes. This was also due to the fact that the Swabians even granted the discounts retroactively.

New subsidies against the downturn

The downturn in the Chinese economy is also causing concern for local governments. In mainland China, one in six of the 800 million jobs depends on the automotive industry. Against the will of the government in Beijing, Guangdong has already introduced its own purchase premiums for electric cars. With 126 million inhabitants, it is the most populous province in the People's Republic. Anyone who buys a New Energy Vehicle (NEV) there in May and June 2023 will receive the equivalent of 1370 euros. Because the government wants to support the entire industry, even buyers of classic internal combustion vehicles will receive a subsidy (half of the NEV subsidy). Experts assume that other local governments - Shanghai, Jiangsu and Zhejiang - will soon follow suit.

(mfz)