China’s EV Race Gets More Serious as Tesla Strengthens its Foothold

The COVID-19 epidemic has hit EV-makers in China with a varying degree of severity. Bleak sales have helped car buyers negotiate prices. Some car dealers burdened by labor costs, rents, and other fixed expenditures were more eager to sell cars at a discount, giving car buyers considerable bargaining power. For buyers who could not afford a car even with a discount, car loans became a viable solution.

This dynamic was quite unfavorable for lower-end electric car manufacturers like China’s BYD. According to the company’s recently released first-quarter 2020 performance forecast, its net profit was 50-150 million yuan. Compared to last year’s 74.973 million yuan, it’s a year-on-year decrease of 79.99% to 93.33%. In this context, BYD decided to shift its focus from cars to chips for the time being.

After a quick internal reorganization, the company rebranded its chip subsidiary BYD Microelectronics into BYD Semiconductor and expanded its business scope from automotive IGBT chips for BYD new energy vehicles (NEVs) to smart IC chips and optoelectronic chips.

Tesla is on track to topple BYD as the world’s largest NEV manufacturer. To make things worse, now that Tesla has a factory in China, its low-end products are priced almost at the same level as BYD’s high-end products. BYD cars can’t compete with Tesla’s quality, and Tesla as a brand bears an air of luxury, while an expensive BYD inevitably falls victim to the company’s positioning as an affordable car manufacturer.

According to the March NEV sales rankings released by the China Federation of Trade Unions, the Tesla Model 3 sold 10,160 cars, which is 3,193 more than BYD’s new Qin EV and Yuan EV combined. In the first quarter of the year, BYD’s sales of NEVs decreased by 69.7% year-on-year. Data from the China Automotive Industry Information Network shows that the number of registered domestic Teslas rose to 11,280 in March, five times over February. 

While Tesla seems to be doing quite well in China, its performance elsewhere has been threatened by the COVID-19 epidemic. In the first two months of the year, Tesla’s new car registrations in Norway and the Netherlands fell by 77% and 42%, respectively. Sales of the Model S, Tesla’s most popular car, fell 49% in the European market.

As a result, the importance of the Chinese market to the EV-maker is increasing. So much so as to push the company known for being adamant about the direct sales model to partner with one of the biggest e-commerce platforms in China, Tmall. 

On April 16, 2020, Tesla announced that it would open its official flagship Tmall store, its first store on a third-party platform in China. Last year, the company opened a similar store on Amazon. In the Tmall flagship store, consumers will be able to book a test drive for just 1 yuan, as well as buy Tesla Model 3 keys, home charging installation packages and other original Tesla accessories.

Tesla, however, still insists on direct sales. While users can request a test-drive through T-mall, to book a car or buy one, users will be redirected to Tesla’s official website. 

Following in Tesla’s footsteps, local Chinese smart EV makers Xpeng and NIO have also bet on the direct sales model. This and other similarities to their American counterpart constantly prompt discussions on whether or not these young Chinese start-ups could challenge Tesla on their home turf. 

More than seven new EV models will officially launch in April, with the new Xpeng P7 being the talk of the town. The first pure electric domestic EV with a driving range of more than 700 kilometers, it already beats Tesla on battery life. Tesla’s Model 3 lasts only around 668 kilometers.

With the P7, Xpeng has also made a step forward from their previous model, the G3, in highly automated assisted driving, voice interaction, Internet of Vehicles, and vehicle OTA. Since November last yea,r when the car was first officially presented, Xpeng pre-sold 15,000 P7s, which is higher than last year’s new car delivery figures of NIO, WM Motor and Xpeng itself. With the P7 showing great pre-sale results, Xpeng aims to sell 10,000 cars a month. If that goal materializes, the company could quite realistically be a challenger to Tesla’s monopoly on smart EVs.

While Xpeng bets on battery life and intelligence, another local EV-maker, NIO, is building a luxury car with a focus on high-quality materials endurance and appearance. The first buyer of the new iteration of the company’s ES8 flagship SUV that recently began deliveries, noted that he decided to buy the car because the old ES8 that he owned saved him in a car accident. 

However, it is still unclear if NIO, which is priced on par with Tesla, will be able to withstand competition from its American rival that currently easily beats it on the technology and brand awareness fronts. Recently, when asked about his company’s race against Tesla, William Li, founder and CEO of NIO stated, “NIO has no room for price reduction. We can’t think of a price reduction, and we will even increase prices.”