Tesla is eating China’s car market – both Internal Combustion Engine (ICE) models and NEV. The ‘catfish effect’ is meanwhile becoming more substantial.
►The new NEV subsidy policy accentuates EV safety and industry innovations (battery swap).
►Xpeng Motors and Lixiang have stated that the policy won't affect sales negatively.
►Tesla achieved strong delivery in March, and it wants more in China.
A long-awaited announcement came last Thursday from the Chinese government about the details of its New Energy Vehicle (NEV) subsidy extension, posing challenges to premium car brands and Joint Ventures – but not Tesla.
Key takeaways from the subsidy include: 1) the subsidy policy will extend to 2022. The overall subsidy was cut by 10%, 20% and 30% year-over-year for 2020, 2021, 2022, respectively; 2) vehicles not meeting the 2020 requirement will be entitled to a 50% discount of the 2019 subsidy during the transition period (April 23, 2020 - July 22, 2020), and those meeting the 2020 requirement will get the full subsidy in 2020; 3) the requirement of battery density in 2020 remains unchanged, but the minimum range was lifted from 250km to 300km; 4) the subsidy is now only applicable to car models with pre-subsidy MSRP of CNY 300,000 or below, with exemption of those adopting battery swap models, like NIO and BAIC BluePark.
Read more about NIO Power.
“While we think the reason for raising the bar to CNY 300,000 is to restrict Tesla’s expansion, the reality is the opposite – the policy gives ample support for Tesla to cut the prices, ”Li Xiang, the founder of car brand Lixiang, said. “It’s easy to adjust the starting price of the Standard Range Model 3 to 300,000 and the post-subsidy price to around 270,000.” Trying to affirm customer loyalty, Lixiang is also going to make up the gap created by the new policy and keep the post-subsidy price unchanged.
“We see the policy favoring the direction we’ve been exploring – Software-as-a-Service systems and smart car operation for smart cars. As such, Xpeng P7 will hardly be infected by the new policy. Tesla has very ample room to react to new challenges (cut prices) due to its high enough gross margin of 30% in China,” Xpeng Motors’ founder, He Xiaopeng, claimed.
Indeed, July will also be a key milestone for Tesla, with two significant events to take place at that time. On the one hand, Tesla’s going to introduce lithium iron phosphate (LFP) batteries provided by CATL into its upgraded Standard Range Model 3. The new battery supply works as a new approach to significantly increase safety and volumetric energy density as well as reduce costs (double-digit percent according to industry insiders). Meanwhile, Tesla expects its China supply chain to contribute 70% of production. On the other hand, Tesla is unlikely to keep the price of the Long-Range Model 3 (MSRP 366,550), which Tesla plans to roll out from June, down further. Customers considering the car will likely flock to Tesla’s service center before July 22.
China’s NEVs contracted by over 50% from one year ago in March 2020. Amid the depression, Tesla championed in China’s Battery Electric Vehicle (BEV) market with a 29% share in terms of deliveries, dwarfing smaller competitors. That was only the third month after Tesla kicked off delivery of Model 3, produced in its Gigafactory in Shanghai.