Bloomberg: Chinese automakers urge Tesla to drop big discounts
American electric car maker Tesla is offering huge discounts in the Chinese market and is causing concern for local companies that regard what is happening as a price war. writes Bloomberg.
The China Association of Automobile Manufacturers (CAAM) urged the competitor to abandon its aggressive sales policy. In her opinion, discounts are not a long-term solution to the problem of falling sales and stockpiling. The industry must return to normal operation to ensure its healthy development, the organization said.
In October 2022, Elon Musk’s company reduced prices for a number of models produced at the Shanghai plant. Another wave of discounts in January 2023 exacerbated the situation. As a result, Chinese-made Tesla vehicles are 14 percent cheaper than last year and nearly 50 percent cheaper than in the US and Europe.
The decisions have forced local electric car makers such as Xpeng and Nio, as well as leading international brands including Volkswagen and Mercedes-Benz, to offer discounts of up to 70,000 yuan ($10,000) to customers. The starting price of Ford’s Mach-E electric SUV has dropped to 209,900 yuan, almost a third cheaper than in the US. Bloomberg estimates that at least 30 other automakers have cut prices.
The price cuts come at a difficult time for the world’s largest car market. Consumer spending in China has fallen sharply due to prolonged restrictions related to the fight against COVID-19. Sales were also affected by the removal of government subsidies for the purchase of electric vehicles at the end of 2022, as well as disruptions in supply chains.
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But even with the challenges, Chinese retail sales of new energy vehicles (NEVs), including all-electric and plug-in hybrids (PHEVs), almost doubled last year to 5.67 million units. Electric vehicle sales in China could reach 8.1 million units this year, compared to 3.2 million in Europe and 1.9 million in the US, according to Bloomberg New Energy Finance. The American investment company Sanford C. Bernstein & Co reports that in 2023 alone, the presentation of 155 new electric and PHEV models is expected in China.
In the face of such competition, financially stronger major players can cut prices even further. Jochen Siebert, managing director of consulting company JSC Automotive, remarked that “Tesla has created havoc for the entire market.” He added that the company has billions of dollars that they can use for this purpose, while others do not.
Chinese companies such as Nio, Xpeng and Li Auto have balance sheets strong enough to remain self-financed for the next 18 months, according to Morgan Stanley. But, according to experts, weaker players under pressure from competitors’ discounts may be on the verge of survival in the next two years.
Earlier it was reported that Tesla’s revenue in the fourth quarter of 2022 reached a record $24.3 billion. Compared to the same period last year, it increased by 37 percent. Annual net income doubled to $12.6 billion.
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