The world is gradually moving towards a green energy transition. Many countries plan to achieve zero carbon dioxide emissions by 2050. Electric vehicles, which have been rapidly gaining popularity since the pandemic, are expected to play an important role on the path to carbon neutrality. According to Bloomberg, citing BNEF's forecast, in 2024, global sales of passenger electric vehicles and hybrids will grow by 21% to 16.7 million cars. Moreover, about 10 million sales will be in China.

With the abandonment of traditional cars with internal combustion engines, competition in the electric car market is growing, manufacturers have staged a real race for world leadership, in which price becomes the main weapon. It is becoming increasingly difficult for the American company Tesla to maintain its position: Chinese brands offer consumers more affordable alternatives.

Finam.ru analysts tell in the article about a high-profile novelty in the electric car market, which has already been dubbed the "Tesla killer", the Chinese industry leader and the price war he has recently staged.

"The Tesla Killer"

On March 28, the Chinese company Xiaomi released its first electric car, the SU7. Reviewers have already been attracted by the bright design of the new car, similar to a Porsche, as well as the price of $ 29,870. The cost of Tesla's main competitor, the Model 3, is $4,115 higher in China.

As Xiaomi CEO Lei Jun said at the presentation, the capabilities of the SU7, which is also compared with the Porsche Taycan and Panamera models, surpass the capabilities of Tesla and Porsche. For example, its minimum power reserve of 700 km exceeds the power reserve of the Tesla Model 3 - 567 km.

Xiaomi's plans to release its first electric car became known back in 2021, when the company invested $10 billion in its development. The company entered into a production partnership with the state-owned automaker BAIC Group and introduced the SU7 sedan for the first time in December 2023. The Xiaomi brand is primarily known for the production of smartphones and other smart devices for the home, which make up a single ecosystem. As expected, the car will also become part of it and will be able to connect to other gadgets.

By the end of this year, the SU7 will go on sale in 211 stores in 39 cities in China. Xiaomi has not said whether it plans to sell the car abroad, but usually the company's bestsellers eventually enter the international market.

Analysts are divided on whether Xiaomi's automotive project will be successful. Some say that the release of an electric car is a natural continuation of the company's activities, others believe that at such a pace Xiaomi risks losing its reputation as an affordable brand.

Evgeny Kogan, an investment banker and professor at the Higher School of Economics, considers the release of the SU7 one of the most long-awaited events in the electric vehicle market. The expert noted that the company raised the bar high, actively bought up its shares before the release, clearly not believing in failure, and eventually sold 50,000 electric vehicles in 27 minutes. For comparison, Tesla sold 70 thousand cars in China in January and February.

It's too early to say whether the SU7 will become a "Tesla killer" in the Chinese market, but this is definitely a new round of the price war of electric car manufacturers from China against other competitors.

BYD overtook Tesla in the race for world leadership

The Chinese manufacturer BYD became the world leader in the sale of electric vehicles in 2023. Last year, the company sold over 3 million electric cars and generated revenue of $83 billion and a record net profit of $4.15 billion.

For comparison, the American company Tesla, which dropped to second place, delivered 1.8 million electric vehicles last year. However, the Tesla Model Y electric car became the best-selling in Europe in 2023. The American company retains leadership in the EU and in the USA. Note that BYD does not sell its electric vehicles in the United States, where a foreign company will have to pay an import duty of 27.5%, which makes entering the American market unprofitable for many "Chinese".

In addition to BYD, two private companies Geely and Great Wall Motors and three state-owned concerns - SAIC, GAC and Changan Auto - stand out in the Chinese electric car market. Next are the companies NIO, Li Auto Inc., XPeng and Huawei, which also have great potential. Xiaomi, which has released only one model so far, is already striving to compete with the top ten Chinese manufacturers.

Chinese electric car manufacturers are dumping prices

Chinese companies are introducing increasingly affordable electric vehicles with comparable technologies and capacities to the global market, which is causing price wars. Brands, wishing to remain competitive, are forced to reduce the cost of their cars. And if large corporations have such an opportunity, then new players in the market simply risk not surviving.

In September last year, the EU accused Chinese manufacturers of dumping prices for electric vehicles, distorting the European market and launched an investigation. According to the European authorities, Chinese companies can abuse their advantage - cheaper energy resources and labor. If the charges are confirmed during the investigation, companies from China may receive additional duties in the EU, which will offset their advantages.

The main instigator of the price war was BYD, which has little leadership from Tesla. In March, the company staged another round of aggressive discounts, planning to entice customers of other major market players - Toyota Motor Corp. and Volkswagen AG. According to Bloomberg, last month BYD reduced prices for more than 100 existing versions of car models and restarted 70 previous versions of electric cars at even lower prices. The discounts did not apply only to the new Yangwang brand, in particular its premium supercar for $ 233 thousand.

While other Chinese manufacturers primarily target sales in affluent megacities such as Shanghai and Shenzhen, BYD also wants to attract drivers from small and poor cities and convince them to switch to electric vehicles.

The scale of the latest price cut shocked even experts accustomed to the highly competitive nature of China's automotive market. Cui Dongshu, Secretary General of the Chinese Passenger Car Association, wrote on his blog that the discounts had become "super intensive" and had reached an "unprecedented level."

BYD's strategy proved successful. Thus, its Qin Plus and Seagull models entered the top five best-selling electric vehicles in the first two months of 2024.

Analysts warn that a prolonged price war will lead to a reduction in revenue in the market, as most companies have yet to make a profit from the production of electric vehicles.

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