NIO CEO William Li (Li Bin) recently stated that Tesla has little influence over EV prices in China, unlike in the US, where it dominates the market. This is in stark contrast to the price wars that have been sparked by Tesla’s January price cuts of up to $7,000 on some of its most popular models.
Citi analyst Jeff Chung noted that Tesla’s price cuts had a negative effect on the order backlogs of many Chinese EV brands, including BYD, who have since offered discounts or subsidies. XPeng, another EV startup, followed suit with its own round of price cuts, offering up to $5,300 off its most popular models.
NIO, however, will not partake in the EV price wars. Li said that blindly cutting prices will create ruthless competition in China and that NIO’s gross margins are too low right now to take part. He added that Tesla can fix vehicle prices in the US with a market share of over 60 percent, but not in China, where it holds only about 7 percent.
Despite this, NIO had back-to-back record quarters in Q3 and Q4 to finish out 2022. The NIO ET5 outperformed China’s most popular gas models and became the second best-selling model in China this January among all mid-size sedans priced at over RMB 300,000.
However, rising lithium prices and vehicle upgrades have caused NIO’s gross margins to fall from 18.9% last year to 13.7% in the fourth quarter of 2022. Li is confident the EV maker will get back on track, reiterating that NIO’s gross margins will be between 18% and 20% during Q4 2023 as the company scales operations.
Meanwhile, in the US, Tesla does have pricing power. The EV leader released Q1 delivery and production numbers Monday, showing the company beat expectations by delivering a record 422,875 vehicles, further expanding the gap in the US EV industry. Tesla leader Elon Musk has said he wants the company to “become the best manufacturer in the world” and believes it is Tesla’s strongest competitive advantage. The efficiency is paying off, with gross margins climbing to 25.6%, among the highest in the industry.
FAQ
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