The price increase of new energy is also a test

Image source @ Visual China

Wen | Sting Institute, the author | Xiaoman

If there is anything faster than the start of new energy vehicles, I am afraid that this wave of collective price increases is now. According to statistics, more than 20 new energy vehicle companies have announced price increases since the beginning of the year, and in the recent week, new energy vehicles have once again concentrated on price increases. Among them, Tesla's price increased 3 times in 8 days, and BYD, Xiaopeng and Weima successively opened the second price increase in the year, and the highest increase in a single model exceeded 30,000 yuan. In addition, new energy vehicle brands such as Nezha, Leading, and Geometry are also "rising".

Since new energy vehicles have become a new trend, both in the consumer market and the stock market, a "new energy fever" has been set off. With the joint efforts of the new car-making forces, a more comfortable driving experience and richer entertainment functions have also attracted more and more users to choose to buy new energy vehicles. However, when the "rising tide" comes, the hidden dangers and deficiencies of new energy vehicle companies have also surfaced.

New energy plays the main theme of price increases

The price increase of new energy vehicles has long been foreshadowed, and the decline of policy subsidies is one of the main incentives. In April 2020, the Ministry of Finance, the Ministry of Industry and Information Technology, the Ministry of Science and Technology, and the National Development and Reform Commission issued the Notice on Improving the Financial Subsidy Policy for the Promotion and Application of New Energy Vehicles, clarifying that the implementation period of the financial subsidy policy for the promotion and application of new energy vehicles was extended to the end of 2022. At the same time, the relatively gentle subsidy retreat intensity and rhythm are adopted, and from 2020 to 2022, the subsidy standard will be reduced by 10%, 20% and 30% respectively on the basis of the previous year.

At the end of last year, the four departments jointly issued documents again, proposing the requirement that "in 2022, the subsidy standard for new energy vehicles will be reduced by 30% on the basis of 2021", which has also triggered many price increases for new energy vehicle brands since the beginning of this year.

On December 31, 2021, industry giant Tesla took the lead in announcing price increases, and its two popular models, Model 3 and Model Y standard endurance editions, increased prices by 10,000 yuan and 21,000 yuan respectively. Subsequently, new energy vehicle companies such as BYD, Xiaopeng, Weima and Wuling Hongguang also announced price adjustments, but the increase did not exceed 10,000 yuan. The outrageous increase in the price of power batteries in the second quarter is the culprit that caused the current new round of "price increase".

The Sting Institute learned that the price increase of power batteries is directly related to the recent surge in the price of core raw materials. The data shows that the price of lithium carbonate rose linearly from January to March this year, breaking through the 300,000 yuan / ton mark at the beginning of the year and reaching 400,000 yuan / ton in mid-February. By the beginning of this month, the price of lithium carbonate has exceeded the 500,000 yuan / ton mark, an increase of nearly 70% compared with the price at the beginning of the year, which is ten times the price at the beginning of last year.

The upward pressure on upstream raw material prices is naturally transmitted to new energy vehicle companies through the supply chain. On March 19, Ideal Auto CEO Li Xiang said on his personal Weibo, "At present, brands that have signed contracts with battery manufacturers to determine the price increase in the second quarter have basically announced price increases immediately." If there is no price increase, most of them have not yet been negotiated, and the price will generally increase immediately after waiting for the negotiation. The increase in battery costs in the second quarter was very outrageous. Another source revealed that the cost of purchasing power batteries by car companies has risen by 20,000 yuan.

From the actual situation, this round involves the price increase tide of the whole industry, not only the increase has been broken, but the price increase range also covers a number of popular models at the high, middle and low end. For example, since March 10, Tesla has raised the price of its Model 3 high-performance version and Model Y long-lasting, high-performance version and other domestic Tesla models, with a cumulative price increase range of 14,200 yuan to 30,000 yuan. BYD's increase ranges from 3,000 yuan to 6,000 yuan, the price increase after the comprehensive subsidy of Weima ranges from 7,000 yuan to 26,000 yuan, and the increase in the price before the Xiaopeng subsidy ranges from 10,100 yuan to 32,600 yuan. While the new energy vehicle market has officially played the main theme of price increases, the rules of the game of internal competition in the industry are quietly changing.

Trade time for space

Initially, traditional car giants and new energy car companies made many consumers full of imagination about new energy vehicles by creating an intelligent driving experience, but the high price during this period stopped most people in front of new energy vehicles. Therefore, "low price" was the main goal of the new energy automobile industry in the initial period. As a game-breaker, Tesla has always used price as one of the important means to seize market share and exchange time for space.

According to CIC reports, between 2016 and 2019, sales of SUV models in the Chinese market grew at a compound annual growth rate of 1.5%, and the penetration rate increased from 38.9% to 45.4%. It is expected to grow at a compound annual growth rate of 3.9% from 2020 to 2024 and reach a penetration rate of 49.2% by 2024. Tesla, which has long smelled market opportunities, will also gradually establish market advantages in 2021 by frequent price means.

On January 1, 2021, Tesla's domestic Model Y was officially released. According to the information on Tesla's official website in China, the starting price of the domestic Model Y long-endurance version is 339,900 yuan, which is 148,100 yuan lower than the previous price, and the starting price of the domestic Model Y high-performance version is 369,900 yuan, which is 165,100 yuan lower than the previous price. With a discount of more than 100,000, the sales of domestic Model Y grew rapidly, and 3.46 Model Ys were sold in the Chinese market in only 5 months, even more than the Model 3 that was a blockbuster product at that time.

In July 2021, the domestic Model Y standard endurance version was opened for booking, with a starting price of as low as 276,000 yuan, compared with the price of other domestic first-tier brands concentrated at about 300,000 yuan, Tesla's people-friendly price occupies a great advantage in the market.

According to the data released by the Association of Automobile Manufacturers, the annual sales of Tesla Model Y in 2021 will be 169,900 units, which will not only become the third place in the 2021 luxury model sales list, but also the only pure electric model on the list. Throughout 2021, Tesla's total global deliveries reached 936,000 units, while the total annual deliveries of Xiaopeng, NIO and Ideal in the same period were 98,200 units, 91,400 units and 90,500 units, respectively.

It is worth mentioning that many domestic brand new energy models will be priced at about 300,000 yuan based on the consideration of enjoying policy subsidies. Through the repeated price reduction drama, Tesla not only enjoyed the subsidy policy, but also established a large number of user groups with low price advantages, laying the foundation for its user-centered commercial operation system.

What is more noteworthy is that Tesla's order volume exchanged for price reduction strategies has also prompted it to develop a complete set of cost control systems from raw material supply to technology application. Compared with the same period and even the current situation, some new players who completely adopt the OEM model to produce new energy vehicles, Tesla's ability to control costs precisely determines the survival rate of new energy vehicle manufacturers from emerging markets to mature markets.

Price is still at the core

On the surface, Tesla has repeatedly played the role of "price butcher", seizing the market at low prices. But as prices continue to fall, Tesla's costs are also decreasing. According to the Sting Institute, in the cost structure of pure electric vehicles, the battery cost accounts for the highest 38%. But when Tesla replaced the ternary lithium batteries used in the early days with lithium iron phosphate batteries in the Ningde era, the cost could be reduced by 20%. In addition, the localization of Tesla's supply chain has also compressed the cost of vehicle manufacturing, bringing more room for price reduction.

Previously, a report by Ping An Securities showed that the localization rate of Model 3 was close to 70% at that time, and the use of domestic core parts could bring 15,000 price reductions. Ping An Securities expects that different versions of Model 3 will cost 23%-29% lower than the US version after achieving 100% localization. Some analysts pointed out that the cost of building an electric car in China is 1/3 of Tesla's average cost.

Taking the Model 3 standard endurance version as an example, its material cost is only 130,000 yuan, plus the structural cost of 60,000 yuan, the total cost of a domestic Model 3 is only about 190,000 yuan, and the price at that time was 249,900 yuan, which means that there is still room for domestic Tesla to be reduced. According to Tesla's official disclosure, in May 2021, its Shanghai factory has achieved more than 90% localization of parts, and Model 3 and ModelY can share some parts, which also enables Tesla to control production costs well. Considering the nearly one million deliveries per year, Tesla is able to establish a clear advantage both in stabilizing the supply chain and in terms of terminal prices.

Although the current price increase has caused different degrees of impact on all new energy vehicle companies, it is more exposed to the challenges and shortcomings faced by new energy vehicle companies as "new players". From the public data, after a round of general increases, the price of some new energy vehicles has been higher than that of traditional fuel vehicles of the same level, which may prompt some consumers who swing between new energy vehicles and fuel vehicles to choose to abandon new energy vehicles. Although considering that the oil price continued to rise in the same period, which increased the cost of using traditional fuel vehicles, under the trend of continuous rise in the price of new energy vehicles, "just need" consumers have no way not to consider the actual purchase price, and in this case, new energy vehicle companies with cost control capabilities are more likely to occupy the initiative.

Cui Dongshu, secretary general of the Association of Automobile Manufacturers, also mentioned in his analysis of the "price increase tide" that the general increase in the price of new energy vehicles is a response measure that downstream car companies have no choice but to make after the successive price increases of upstream materials. Compared with the cost resolution capacity accumulated over many years in the production of fuel vehicles, new energy vehicles are more vulnerable to cost constraints, and the price system is still immature.

In simple terms, the ability to control costs is reflected in the bargaining power of the upstream supply chain, higher production efficiency and resource utilization in actual production, and attractiveness to consumers in terminal prices. In addition to price adjustments made regardless of cost, the other two require the accumulation of time and experience. Tesla has completed the accumulation through the price reduction strategy, and the head domestic new energy vehicle companies have also gained with the increase in order volume, but the new players who have entered the game are still difficult to catch up with the progress for a while, and the "price increase tide" is enough to make them aware of this problem. As for whether they can get the entry ticket to the mature market of new energy vehicles, it is necessary to see whether they can run faster than the market.

It is worth affirming that in the industry environment of "double carbon" goals and the gradual popularization of new energy vehicles, the new energy vehicle market is still in the growth stage, and the market demand will continue to grow. However, in the context of the decline of policy subsidies, price increases are still the general trend of new energy vehicles, and how to continue to attract the majority of "just need" consumers may become a key issue that will determine the future market pattern.