China’s EV manufacturing sector is back in the limelight with international investors, as its electric vehicle brands begin to expand overseas. Recent publicity about European tariffs on China-made EVs has also served to highlight the success stories within China’s domestic EV market. These are names that are now starting to compete against Tesla on the world stage.
One of the serious challengers to Tesla’s crown is BYD. In the first quarter of this year, BYD launched several “Glory Edition” models, primarily aimed at stimulating demand in the lower-end market, which essentially amounts to a subtle price reduction.
For vehicles priced under 150,000 RMB in China, BYD holds absolute pricing power because, aside from glass and tires, it manufactures almost everything in-house. In contrast, other new energy brands like NIO NYSE:NIO and XPeng NYSE:XPEV are more focused on assembly, making it harder to control costs.
BYD’s introduction of insurance for new energy vehicles isn’t driven by profit but rather by the goal of expanding its market share in the new energy sector.
Considering the current rate at which dealerships are being phased out, along with BYD’s strategy of focusing on company-owned stores and expanding with existing high-quality dealers, experts predict that within a year and a half, BYD will no longer rely on independent dealerships.
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Will EU tariffs harm the Chinese EV export sector?
Regarding the EU’s temporary anti-subsidy tariffs on electric vehicles from China, automotive industry experts also believe the core objective is to use tariffs as a means to protect the European automotive industry.
This is only the first phase; the EU is likely to observe how Chinese automakers respond. If Chinese companies decide to build factories in Europe, it would be the most desired outcome for the EU. Looking ahead, analysts predict that subsidies, combined with carbon taxes and battery passports, will be used to attract the upstream battery supply chain to Europe.
Although Tesla has already raised prices, analysts believe that, as of now, no Chinese automaker has adjusted prices in response to the temporary anti-subsidy tariffs, as they are waiting for the final decision in November. There is widespread anticipation that the final tax rate may remain unchanged.
In the short to medium term, Chinese automakers may adjust prices or delay the introduction of new energy vehicles into Europe to mitigate some of the impacts, but in the long run, building factories will be the inevitable trend.
Li Auto responds to price wars in EV sector
China’s Li Auto NASDAQ:LI has dropped its average product price to below RMB 300,000 with the launch of the L6, easing the pressure from price wars with competitors. The L6 now makes up most of their sales, while the pricier L8 and L9 models are lagging behind. This could mean a slight dip in profit margins.
“It’ll be interesting to see if Li Auto rolls out even cheaper models, like the L5 or L3, to keep up sales,” said Rosalie Chen, an analyst with Third Bridge, a stock research house.
Li Auto has shown it can be profitable before, but the company’s first-quarter loss came from weak Mega sales and a decrease in the average selling price of its products.
Looking ahead, Li Auto might launch a new BEV model, possibly the Li M8, next year. However, analysts are skeptical about the future of Li Auto’s BEV series, especially with the intense competition in the market. The company is likely to stick with its extended-range hybrids, but to make its BEVs more appealing, Li Auto will need to rethink the design, interiors, and pricing.
Huawei Auto has become a major and the most direct competitor to Li Auto in terms of data and sales volume. Chen at Third Bridge thinks that Li Auto’s layoffs have led to an outflux of experienced employees to its competitors, which may impact its future sales.
