The price war in the Chinese automotive industry is in full swing, but Tesla has risen in price against the trend.
On March 20th, several salespeople told reporters that the selling price of the Model Y model will increase by 5000 yuan on April 1st. Meanwhile, the current official current car insurance subsidy policy of 8000 yuan and the maximum paint reduction policy of 10000 yuan will also expire on March 31st. According to the above algorithm, the actual price increase of the sales claim for this price adjustment is as high as 23000 yuan.
That night, Xiaomi founder Lei Jun posted on Weibo, saying "Tesla is amazing, I truly admire it." "In the current electric vehicle market, competition is so fierce that only Tesla dares to raise prices.".
The reporter found that four factors, including slowing domestic delivery, global unified selling prices, rebound in lithium carbonate prices, and the need to improve corporate gross profit margins, have comprehensively promoted Tesla's price increase. Tesla's 2023 financial report shows that despite a 3% increase in total revenue for the year, Tesla's net profit decreased by 39% year-on-year, and its gross profit margin was only 17.6%, lower than analyst forecasts.
Over the past two years, the price reduction war led by Tesla and BYD has not only tested the strength of major brands, but also tested their wisdom and determination. Whether to lower or increase prices has become a problem that every car company needs to face. In the answer to this question, there is also a hidden fate of the enterprise and changes in the market structure.
Lithium carbonate prices rebound, Tesla's price increase has long been premeditated
"In the second quarter, Tesla focused on exports, but domestic delivery slowed down, resulting in favorable domestic recycling and an increase in car prices." On March 20th, Tesla sales personnel explained to a reporter from the New Beijing News and Shell Finance that Tesla has made price adjustments globally, with more orders and fewer deliveries in the overseas market, resulting in a price increase.
In fact, starting from March 1st, Tesla's Model Y rear wheel drive and long-range all wheel drive models in the US market have increased in price by $1000 each. On March 15th, Tesla once again announced that the Model Y in the US market would increase in price by $1000 starting from April 1st. On March 16th, Tesla announced that the Model Y in some European markets would increase in price by around $2000 from March 22nd.
The news that Tesla China may follow the global market to raise prices has been circulating for some time due to the consecutive release of the above three messages.
The salesperson also suggested that the reporter check the price of lithium carbonate. At present, the price of lithium carbonate has shown a strong rebound after consecutive declines, and the main futures of lithium carbonate have reached the price range of 120000 yuan/ton, with a single day increase of about 10%. In terms of spot goods, the current price of lithium carbonate is around 100000 yuan/ton.
However, it should be noted that the price increase of lithium carbonate is not sustainable. Mo Ke, Chief Analyst of True Lithium Research, said that lithium prices may drop to around 70000 yuan within the year, and will hit a bottom of 50-60000 yuan/ton in 2025 before hitting the bottom and starting the next cycle.
In addition to the reason for the increase in lithium prices, another salesperson mentioned other reasons. He told reporters that the price increase in the domestic market this time is partly due to the price increase in the North American and European markets, and global prices need to be unified. On the other hand, due to the comprehensive consideration of Tesla OTA upgrade costs, operating costs, and after-sales costs, price increases are needed.
Multiple discounts since the beginning of the new year have failed to bring about an increase in sales
Since the beginning of this year, Tesla has launched three consecutive promotional activities.
On the first day of 2024, Tesla announced that purchasing the Model 3 rear wheel drive version would entitle them to an insurance subsidy of 6000 yuan, and limited time purchases of the Model 3 and Model Y would enjoy a maximum discount of 23000 yuan.
If the New Year discount is just a small sweetness, Tesla will expand its strategy next. On January 12th, Tesla China's official website showed that the price of the updated Tesla China Model 3 had dropped to 245900 yuan, and the price of the Model Y had dropped to 258900 yuan.
The characteristic of this price reduction is that the updated version of Model 3 was just launched in September 2023, with a starting price of 259900 yuan. In just 4 months, the price of this car has been lower than the starting price at the time of release.
In February 2024, BYD began a significant price reduction after the Spring Festival, adding fuel to the price war once again. Faced with such a market situation, the entire electric vehicle industry can only compete. Several new energy brands, including Changan, Nezha, SAIC GM Wuling, and others, have adjusted their strategies in an attempt to maintain their competitiveness amidst price cuts.
Tesla is naturally not to be outdone. On March 1st, Tesla launched a limited time car purchase promotion. According to the activity regulations, buyers of Model 3 and Model Y cars can enjoy a total maximum discount of 34600 yuan, including insurance subsidies, car paint benefits, and low interest finance, before the end of March.
In China, car companies that have started a wave of price reductions often hope to "sell at the price", but Tesla's discounts have not resulted in an increase in sales.
According to data from the China Association of Automobile Manufacturers, Tesla's wholesale sales in February were 60365 vehicles, a year-on-year decrease of 18.9% compared to 74402 vehicles in the same period last year, and a year-on-year decrease of 15.5% compared to 71447 vehicles in January.
Not only in the Chinese market, Cui Dongshu, Secretary General of the China Association of Automobile Manufacturers, stated that Tesla's sales in the United States only increased by 25% in 2023, making it one of the slowest new energy vehicle companies in the United States. Tesla's model updates are too slow, and Tesla's new car development speed has halved, from launching a new car every year to every two years.
Generally speaking, a domestically produced fuel powered car undergoes a redesign every two years and a generational upgrade every four years, with a higher frequency of electric vehicles. At present, domestic electric vehicles are updated and replaced every two years, and if they cannot catch up, they will become outdated. On the other hand, Tesla released the Model 3 in 2016 and only introduced a facelift in 2023.
In November 2019, Tesla released Cybertruck. This car was supposed to be taken offline in 2021, but for most customers, the earliest pick-up date is 2024. According to the planned annual production capacity of 375000 vehicles, and considering that delivery will prioritize North America, domestic users now have to wait at least 5 years to pick up their vehicles when booking.
What did Tesla lower its price in exchange for?
Behind this price increase, Tesla's latest performance has been criticized multiple times.
Looking back at 2023, Tesla was the first in the electric vehicle industry to launch a price reduction storm. Although it won more market share for itself, it also put unprecedented pressure on other car companies.
Faced with Tesla's price reduction trend, many car companies have begun to adjust their pricing strategies, and following up on price reductions has become a common phenomenon in the industry. In this price war, the word "roll" became a popular term at that time.
Entering 2024, BYD has launched a price war, and Tesla continues to offer a large number of preferential policies. However, it is evident that the price reduction has a decreasing impact on Tesla's sales, while its negative impact on performance has become apparent.
Tesla wrote in its 2023 financial report that "the cost of sales per vehicle has dropped to around $36000, and we are now approaching the natural limit of cost reduction for automobiles. However, we will continue to focus on further reducing costs from raw materials to production delivery.".
Tesla explained that for the fourth quarter, the total revenue only increased by 3%, which was due to a year-on-year decrease in the average selling price of vehicles. In the fourth quarter, Tesla's revenue decreased to $2.1 billion year-on-year, with an operating profit margin of 8.2%. Tesla stated that its revenue has declined due to pricing and other reasons.
Making cars has never been easy. On March 20th, Lei Jun stated on Weibo that currently, many pure electric vehicles, except for Tesla, are suffering huge losses. Tesla's large scale and high operational efficiency actually only result in a profit of 9.2%. After calculating, Lei Jun stated that the Model 3 is currently priced at 245900 yuan. If calculated based on the operating profit margin in the financial report, it would require a selling price of 223000 yuan to be basically balanced.
He also mentioned that the standard version of the Xiaomi SU7 has a configuration far superior to the Model 3, with solid materials used. Moreover, in the early stages of product launch, procurement costs were also very high, and there was indeed some pressure on pricing. We hope everyone can understand.
"Tesla will not engage in a price war due to internal competition in the automotive industry," Tesla Sales told reporters on March 20th that Tesla's goal is still to provide better products and experiences for car owners. "If a company cannot even make money or obtain basic operations, but instead promises better services to car owners, it is false." "Tesla is raising prices to provide better products and experiences for car owners.".
Price wars may not necessarily boost sales in the short term. Cui Dongshu stated that the price war does not actually have a significant effect on short-term sales promotion, especially in situations of unstable prices where consumer wait-and-see sentiment is particularly strong. Therefore, discounted models may bring about sales growth for the discounted models themselves, but it will form a clear wait-and-see situation for other related models, which will result in related models having to lower prices. If the price is not lowered, it will not be sold.
According to external research, consumers have a strong wait-and-see attitude towards prices, and the positive incremental factors brought about are not significant in the short term. At the time of price reduction, there will be a temporary downturn in sales and a wait-and-see phenomenon, and the positive purchasing effect brought about by the price reduction in the short term will be offset.
But in the trend of fierce price wars in the Chinese automotive industry, can Tesla's price increase against the trend actually protect itself?
New Beijing News Shell Finance Reporter Lin Zi