Tesla's price cuts have caused much more turmoil across the globe than some people may have expected, and this is especially true in China. According to analysts, the situation may become so dire that some Tesla rivals may have to close up shop, or perhaps partner up or consolidate.
When Tesla first started lowering prices, the word on the streets was a lack of demand for its EVs, which has been the initial story nearly every time Tesla reduced prices over the years. Regardless of the reason for the US EV maker's price cuts, they've worked, and in a big way. Tesla's timing of the price cuts sent the industry into a spiral, and it's continuing to spin out of control in some cases.
Tesla has more competition in China than in any other market, which makes sense since it's the largest auto market on the planet and a hot spot for EVs. CEO Elon Musk even has gone so far as to say publicly that certain carmakers in China are really Tesla's only concern when it comes to real competition.
Tesla's EVs tend to be more premium and more expensive than some of its rivals' offerings in China, so the clear answer is to reduce prices, boost demand, and ensure that EV buyers in China choose Tesla over local electric car producers. Tesla has done just that, and it's working. In fact, after a few price cuts in China, some Tesla models are 50% cheaper than they are in the US.
Needless to say, Tesla's rivals in China have lowered their prices to better compete, much like other global automakers. Mercedes and Volkswagen are offering discounts in China, Ford dropped the price of the Mustang Mach-E electric crossover, and local companies Nio and Xpeng have had no choice but to cut prices as well.
Some 30 automakers in China have now reduced prices, and it's creating a disaster for some. According to recent reports, the China Association of Automobile Manufacturers has asked for an end to the price war. The organization notes that this is no way to fix long-term concerns and was simply put into place due to a drop in sales at the beginning of 2023. It hopes to convince automakers to "return to normal operation” as soon as possible.
According to Teslarati, Nio's Chief Financial Officer Steven Feng told Bloomberg Television that the auto industry in China is dealing with a "very profound shuffle.” He shared:
“We need to go through this price war at the beginning of the year, and then we expect the industry to go through some profound fundamental consolidation. It’s almost consensus that China now has too many automakers."
Over 150 new electric cars and plug-in hybrids will debut in China in 2023 alone, and there are arguably too many brands and models for buyers to choose from already. Meanwhile, as many of China's automakers are struggling with the price cuts, Tesla is in a position where it could reduce prices even further if needed.
Tesla has billions of dollars it could use to sustain price cuts, while rival automakers are already hurting. Morgan Stanley notes that BYD could also afford to be more aggressive with price reductions for a time, but weaker competitors won't be able to handle it for long.