Tesla's Price War Sparks Drop in Chinese Rivals' Shares: Who Will Emerge Victorious?
Elon Musk's announcement that Tesla will continue to cut prices to boost demand for electric cars in the fiercely competitive Chinese market has resulted in a fall in shares for Chinese rivals, with XPeng plunging 8% and Nio sinking 5.6% on Thursday. Li Auto and Leapmotor also saw a decline, falling by 4.2% and 2.4%, respectively. BYD, the world's largest seller of plug-in hybrid EVs and battery EVs, saw its shares drop 1% in Hong Kong and 2.3% in its Shenzhen-listed stock.
During an earnings call with analysts on Wednesday, Musk stated that Tesla believes that pushing for higher volumes and a larger fleet is the right choice in China, rather than a lower volume and higher margin. "We do believe...that it's better to ship a large number of cars at a lower margin, and subsequently, harvest that margin in the future as we perfect autonomy," he said.
In October, Tesla began cutting prices in China after losing market share to rivals such as Warren Buffett-backed BYD. The company reduced prices again in early January for its China-made Model 3 and Model Y, sparking a price war in the country. In January, sales of Tesla's China-made vehicles rose by 10% compared to the same period a year earlier, while many of its Chinese rivals saw a decline in sales, with Leapmotor and Xpeng's sales plummeting 86% and 60%, respectively.
Tesla's price cuts have led to concerns about pricing pressure among European car makers. On Thursday, shares of European car makers also tumbled, with Renault falling by 6.5%, even as the French company reported strong sales and higher prices for the first quarter. The newly-formed Stellantis, resulting from the merger of Fiat Chrysler and PSA Group, experienced a 4.8% decline in their stock prices. Meanwhile, both Mercedes-Benz Group and BMW saw a decrease of around 2.8% in their shares. And Europe's biggest car maker, Volkswagen, fell 1.9%.
More than 88,000 units of Tesla's China-made vehicles were sold in March, as reported by the China Passenger Car Association (CPCA). This figure represents a remarkable surge of 35% in sales compared to the previous month. However, BYD sold more than 100,000 pure battery EVs, putting Tesla behind in sales in the world's largest EV market.
As the competition in the electric car market continues to intensify, it remains to be seen how Tesla's aggressive pricing strategy will affect its Chinese rivals and the wider automotive industry. With the focus on delivering high volumes at lower margins, Tesla is betting on autonomy as a key differentiator in the future. In the meantime, car makers around the world will need to stay agile and adapt to the changing market conditions to remain competitive.
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