NIO CEO William Li notes that Tesla doesn't dominate in China, so it simply doesn't have the great influence to start a price war in China. The US EV maker may be able to provoke a major price war in its home market and in many areas across the globe, but China has successful EV rivals unlike those in any other country.
Tesla cut prices a few times this year in many markets across the globe. In fact, the automaker had already been cutting prices and offering incentives in China toward the end of 2023. CEO Elon Musk has made it clear that Tesla's main rivals are gas-powered cars, and its only EV rivals worth celebrating are those in China.
Regardless of Li's recent words, Jeff Chung, a Citi analyst shared that Tesla's price cuts have already forced some brands in China to see cancellations. Tesla lowered the price of the popular Model 3 and Model Y by as much as $7,000, and it's causing EV buyers to closely reconsider their options.
According to Electrek, China's Li went on to say that Tesla cut the prices of the Model Y and Model 3 to challenge rivals in the country since the US carmaker's EVs "are less complex in functions and configurations compared to Chinese car brands, such as BYD." The NIO CEO also claimed:
"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."
Interestingly, Electrek adds that since Tesla reduced its prices, more than 40% of brands have come forward with incentives on both gas and electric cars in China. Following suit with Tesla, rival Xpeng advertised discounts of up to over $5,000 off its most popular EVs.
Meanwhile, NIO CEO Li admits that his company's gross margins are not high enough right now to get involved in a price war. Speaking at a recent conference, he said that Tesla's blind price cuts will create unnecessary cutthroat competition and turmoil in China's auto market.
NIO's margins have fallen due in part to increasing lithium prices. The goal is to get back near 20%, but the margins had dropped to around 14% by the end of 2022. Amid the significant price cuts, Tesla is still seeing some of the highest gross margins in the industry, at over 25%, according to Electrek.
NIO delivered 122,000 EVs in 2022, which was up an impressive 24% year over year. While Tesla doesn't break out sales by region, it just revealed that it delivered over 420,000 EVs globally in Q1 2023 alone.