Tesla Model Y Hits Record Low Price: Is the Price War Back with a Vengeance?

Tech 2024-12-12 02:38:37 Source: Network

Tesla Model Y Hits Record Low Price: Is the Price War Back with a Vengeance?China's automotive market has witnessed unprecedented price wars in recent years, and 2024 seems to be escalating the conflict. Tesla's Model Y, with its historically low price, has reignited the price war

China's automotive market has witnessed unprecedented price wars in recent years, and 2024 seems to be escalating the conflict. Tesla's Model Y, with its historically low price, has reignited the price war. According to Tesla's latest purchasing policy, until December 31st, buyers can enjoy a 10,000 RMB (approximately $1,370 USD) discount on the Model Y, bringing the starting price down to 239,900 RMB (approximately $32,800 USD) and offering a 5-year, 0% interest financing plan. This price is not only the lowest in the Model Y's history in China but also globally.

Li Auto quickly followed suit, launching a "3-year 0% interest loan" policy for its entire model range, further lowering the barrier to entry for consumers. This covers the L6, L7, L8, L9, and MEGA models. The entry-level L6 requires a minimum down payment of only 69,800 RMB (approximately $9,500 USD), saving buyers up to 15,700 RMB (approximately $2,150 USD) in interest; even the highest-priced MEGA model sees its down payment reduced to 159,800 RMB (approximately $22,000 USD), saving up to 27,700 RMB (approximately $3,800 USD) in interest.

Traditional gasoline-powered vehicles have also joined the price-cutting frenzy. For example, the new Volkswagen Golf, launched on November 30th, is priced between 129,900 and 209,900 RMB (approximately $17,800 and $28,700 USD), representing an overall price reduction of about 20,000 RMB (approximately $2,750 USD). This demonstrates that even classic models face downward price pressure during model changes.

Tesla Model Y Hits Record Low Price: Is the Price War Back with a Vengeance?

However, behind the price war lies a continuous decline in profits across the automotive industry's supply chain. Leading automakers are adopting "cost reduction and efficiency improvement" measures to maintain competitiveness. BYD has sent price reduction notices to its suppliers, demanding a 10% price cut starting January 1st, 2025; SAIC Maxus is also seeking cooperation with suppliers to achieve a 10% cost reduction target. These actions have drawn widespread attention within the industry and reflect the immense pressure faced by automakers.

Cui Dongshu, secretary-general of the China Passenger Car Association (CPCA), points out that while year-end automotive market promotions typically see a 4% increase, the 2024 peak for new energy vehicle promotions has risen to 7% and has solidified into price cuts. CPCA data shows that from January to September 2024, the number of price-reduced models reached 195, exceeding the 150 in all of 2023 and far surpassing the 95 in 2022. The domestically produced Tesla Model Y, less than four years after its launch, has seen its entry-level price drop by 100,000 RMB (approximately $13,700 USD). Tesla explains this as adhering to its "cost-pricing" principle, aiming to lower the entry barrier for smart electric vehicles. Currently, China has become one of the markets with the lowest Tesla prices globally, with price advantages reaching as high as 185,000 RMB (approximately $25,300 USD).

The price reduction strategy has proven effective. Data shows that Tesla's Shanghai Gigafactory delivered 79,000 electric vehicles in November, a 15% month-on-month increase; Novembers domestic sales exceeded 73,000 units, representing a 12% year-on-year increase and an 82% month-on-month surge, setting a new high for the year. Sales in the last week of November even surpassed 18,600 units, a record for the quarter.

Tesla's price war strategy has triggered a chain reaction in the industry. While Li Auto hasn't directly followed suit with price cuts, its rapid introduction of interest-free financing policies achieves a similar effect of lowering the purchase threshold.

Some institutions predict that the cost of new energy vehicle batteries will continue to decline over the next two years. A Goldman Sachs research report indicates that by 2026, electric vehicle battery costs will drop by nearly 50%, with the average price falling from $149 per kilowatt-hour in 2023 to $80. This is primarily due to advancements in battery technology and declining raw material prices. Technological improvements have increased the energy density of new batteries by 30%, and prices of key metals like lithium and cobalt have fallen from their highs.

One characteristic of the intelligent automotive era is the rapid decline in costs and significant performance improvements. Cao Xudong, CEO of MOMENTACEO, states that the development of high-level intelligent driving follows Moore's Law, with hardware BOM costs halving every two years and software experience improving tenfold every two years.

However, the continuous price war also presents significant challenges to the automotive industry. Deng Chenhao, vice president of Changan Automobile and CEO of Deepal, believes that price wars and subsidy policies have a depleting effect, and the price war is likely to intensify next year. The China Automobile Dealers Association points out that the method of stimulating sales through price cuts is gradually losing its effectiveness, with negative effects exceeding expectations. Half of the dealers nationwide are losing money, and manufacturers' strategies regarding supply, inventory, and after-sales service are seriously out of sync with market realities.

In the first three quarters of 2024, the automotive industry's profit was 336 billion RMB (approximately $46 billion USD), a year-on-year decrease of 1.2%, with a profit margin of only 4.6% the lowest in nearly a decade. Data from the China Automobile Dealers Association shows that from January to August 2024, the new car market suffered cumulative retail losses of 138 billion RMB (approximately $19 billion USD). Profit per vehicle fell from 17,000 RMB (approximately $2,300 USD) in 2023 to 16,000 RMB (approximately $2,200 USD) in the first nine months of 2024, further dropping to 11,000 RMB (approximately $1,500 USD) in September. Deng Chenhao states that automotive companies need a 15% gross profit margin to survive; below this level means losing money on every car sold.

Faced with continuously declining profits, some automakers have attempted to withdraw from the price war, but with little success. BMW announced a "reduce volume, maintain price" strategy in July, but its sales were almost halved in August, and it had to rejoin the price war in September. In the third quarter, BMW's deliveries in the Chinese market plummeted by 29.8% year-on-year, and its earnings before interest and taxes fell by a staggering 61%. Other traditional automakers, such as Mercedes-Benz and Audi, also saw significant declines in sales and profits in the third quarter. Mercedes-Benz's profits fell by 48%, and Audi's plunged by 91% (although Audi's steep decline was partly due to restructuring costs at its Brussels plant), but intensified competition in the Chinese market was also a significant factor. Audi's profit in the Chinese market decreased by 25.3% year-on-year.

In this fierce market competition, raising prices almost equates to surrendering market share. The automotive industry's elimination competition has reached a fever pitch. Wang Jun, president of Changan Automobile, stated that of China's 71 passenger car brands, only three are profitable, and it is estimated that over 80% of Chinese brands will face closure, suspension, or transformation in the future. Li Bin, CEO of NIO, also points out that the most intense stage of the qualifying rounds for the smart electric vehicle industry has arrived, and only a few excellent companies will survive in two or three years.

Lu Fang, CEO of Lantu Automobile, believes that the current low profit margins require serious consideration, and profits should be improved through technological innovation, management innovation, and efficiency optimization. He advocates against unfair and malicious competition to ensure the healthy and sustainable development of the industry.

In conclusion, the 2024 automotive price war is unprecedentedly fierce, impacting the entire industry chain, and all automakers face enormous challenges and opportunities. The outcome of this price war will determine the future landscape of the automotive market.

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