Tesla's price war has forced Wei Xiaoli to a corner, can BYD hold on?

Source: Visual China

Author丨Cheng Xiaoyi

Editor丨 Kang Xiao

Produced by Tencent News Xiaoman Studio

Tesla's large-scale price war has turned 2023 into the most difficult year for new domestic car manufacturers.

Tesla has made many price adjustments last year, and this year it sounded the trumpet of price war on January 6, and Tesla's domestic models fell by up to 48,000 yuan, and the price hit a record low. Just 5 days ago, the state subsidy for new energy vehicles was officially canceled, and car companies such as BYD, SAIC Volkswagen, Changan Automobile, Leap, and Nezha Automobile tacitly carried out a round of collective price increases in order to maintain profits.

Angry old car owners once again pushed Tesla into the whirlpool of public opinion, but the voice of rights protection not only failed to extinguish the momentum, but also seemed to become a boost to Tesla's price reduction. According to data compiled by CMBI, Tesla China's average daily sales soared 76% year-on-year to nearly 13,000 vehicles a week after the price cut. There are also media reports that the number of orders in some Tesla stores increased by 500% compared with December.

Tesla's bottom line for automotive gross margin is 20%, and although the gross margin of automobile sales fell to 25.47% in the fourth quarter of last year, a nearly two-year low, it is still within Tesla's acceptable range. For other car companies, whether to reduce prices or not is a difficult choice. Taking BYD and Wei Xiaoli as examples, their gross profit margins in the third quarter were below 20%.

In short, Tesla can make nearly 70,000 yuan selling a car before the price cut, and at least 30,000 yuan after the price cut. BYD made less than 10,000 yuan in a car without price adjustment, and NIO, Xiaopeng, and Lili were in a state of losing money selling cars, losing 100,000, 80,000 and 60,000 yuan selling a car in the third quarter of last year.

Therefore, it is difficult for the new forces to follow Tesla's price reduction rhythm.

On January 26, Beijing time, Tesla CEO Elon Musk said in the fourth quarter of 2022 earnings call that Tesla's price cut boosted demand, and global sales are expected to reach 2 million vehicles in 2023.

"Although the overall automotive market may contract, the demand is good, so price is really important." Musk said Tesla would consider a "small price increase" because demand is greater than production. Tesla CFO Zachary Kirkhorn said the average price of each model will remain at $47,000. In addition, after the Tesla 4680 battery is installed, Tesla's cost may be reduced by another 54%.

In the fourth quarter of last year, Tesla broke a number of records, achieving the highest revenue, highest operating profit and highest net profit in a single quarter in history. Operating income reached US$24.3 billion, up 37% year-over-year; Operating profit increased to US$3.9 billion, with an operating margin of 16.8%; Net income attributable to common shareholders was $3,687 million, an increase of 59% year-over-year. 2022 is called by Musk as "the best year ever".

Tesla's stock price rose sharply after the announcement of the fourth quarter earnings, and as of January 26, Eastern time, the stock price rose more than 10% to close at $160.27 per share, the largest closing gain in two years. The market cap recovered to $500 billion.

For car companies at the same price as Tesla, not reducing prices is equivalent to giving the market away. According to car fan data, Tesla's price reduction had a greater impact on Xpeng Motors, and the number of P5 and P7 stores plummeted after Tesla's price cut.

Tesla's competitors began to sit still. On January 13, Huawei's AITO M5 EV and M7 models dropped by about 30,000 yuan; On January 17, Xpeng Motors also lowered the official prices of the G3i, P5 and P7 models, with a maximum reduction of 36,000 yuan.

In the future, more car companies will follow Tesla's lead in cutting prices, and this prediction has almost become the consensus in the industry. But not everyone survives the price war. Following last year's rapid attack on the city and land with the tactics of the car sea and accelerating the process of competition, Tesla has left a life and death choice in front of many car companies: whether to increase prices to ensure profits, or to reduce prices to compete for sales?

Reducing prices does not necessarily change markets

This is not the first time Xpeng has cut prices in nearly a year. In May last year, Xpeng's intelligent assisted driving system (NGP) was adjusted to free standard equipment, which was previously optional for 20,000 yuan and 36,000 yuan after picking up the car. In mid-July last year, amid the price increase tide of new energy vehicle companies, Xpeng Motors launched a limited-time discount that lasted for about one month, and the price reduction plus the additional optional rights were reduced by about 20,000 yuan. But the effect was not satisfactory.

Successive preferential policies did not stop the decline in sales, and Xpeng Motors' sales suffered four consecutive declines from July to October last year. According to Snow Leopard Finance and Economics, when the discount was highest in July and August last year, the number of people entering the store for consultation did not increase significantly.

A Xpeng employee told "Deep Net" that at present, the cockpit and car machine in automotive intelligence only have negative factors in the consumption link, not the decisive factor with pricing power. "Xpeng's (intelligent) advantages are only obvious when it is put together with joint ventures and foreign automakers."

A similar situation happened to Huawei's AITO. According to the statistics of car fans, within 72 hours of the official announcement of the price reduction, there was only 1 real new order in the store, and the number of stores did not increase significantly. Compared with August to November, the number of stores entered fell by about 70%-75%, and the average daily entry was only 5-6.

From the perspective of the macro environment, since December, the auto market has not ushered in an outbreak due to the lifting of the lockdown, but the number of stores of all brands has plummeted by more than 50%, and the situation has become more serious in January. The other quarter has always been the off-season for sales of new energy vehicles. Sun Shaojun, founder of Car Fans, said, "Tesla's price reduction did not affect the M7, and (consumers) mainly compared the ideal L8." ”

"It's not a disaster to be pulled into the price range by consumers to do comparisons." Li Xiang, CEO of Ideal Auto, quickly responded on Weibo, not targeting any brand, and not being compared with the price range is a disaster. "Products with low sales are not qualified to become competitors of others."

Price reduction has always been the most powerful marketing tool in consumer goods sales, and it is also a hole card. An automotive analyst told Deep Web that Tesla's high brand premium is an important reason for its ability to cut prices and grab the market. For other car companies, price cuts may not necessarily be exchanged for the corresponding market, but not reducing prices looks like they will be squeezed market share.

An auto parts supplier lamented to "Deep Web", "The price of electric vehicle rolls is a very bad phenomenon, and many companies may die." ”

Tesla's price war battlefield is not limited to China, in January this year Tesla has opened the global price reduction, following China, Australia, South Korea, Japan, the United States, Norway, Germany, France, the Netherlands, the United Kingdom is also following up the price reduction, according to Shenwan Hongyuan statistics, the global price reduction range is 10%-15%.

New energy vehicle companies in other countries have also been affected. On January 19, Vietnamese electric vehicle company VinFast said it would launch promotional activities in the US market to protect the market competitiveness of its models and cope with the impact of Tesla's price cuts.

"As a new entrant to the market, we had to launch promotions when other brands cut prices to ensure VinFast's competitiveness." A VinFast spokesperson said VinFast is considering multiple promotional plans and does not rule out price cuts. VinFast's two models, VF8 and VF9, have been ordered by nearly 65,000 units worldwide and are expected to sell 750,000 electric vehicles annually by 2026.

It is difficult for new forces to participate in the price game

Net profit rate is a comprehensive embodiment of the company's earning ability and management level, and the amount of net interest rate can measure whether the company has a thick profit safety cushion when fighting a price war.

By comparing the net profit margins of Tesla, BYD, NIO, Xpeng, and Lili from the first quarter of 2021 to the third quarter of 2022, it can be seen that Wei Xiaoli is basically unable to "fight" with Tesla to the end.

According to Shenwan Hongyuan's calculations, Tesla has a net profit margin of nearly 15%, and this global price reduction is expected to sacrifice 5%-10% of gross profit. Considering the North American subsidy policy, the annual decline in the supply chain, the investment of the Berlin factory, the decline in points revenue and other factors, it is expected that Tesla can still maintain a single-digit net profit margin for further market strategies.

However, looking at Wei Xiaoli, ideally only once the quarterly net profit rate turned positive, and NIO Xiaopeng's long-term net profit margin was negative, and as high as -30%. Even for BYD, the net profit margin did not exceed 5%.

What is more serious is that Tesla has gradually entered the stage of diluting R&D expenditure, while Wei Xiaoli is still in the stage of technology accumulation that loses money by selling cars. NIO plans to invest 3 billion yuan in R&D in a single quarter before breakeven, and ideally expects R&D investment of 10 billion to 12 billion yuan in 2023.

In addition, Wei Xiaoli has been in business for nearly 10 years, and it has reached the moment when it is necessary to hand over the profit answer.

Li Xiang, CEO of Ideal Auto, said that Ideal will strive to achieve a monthly revenue of more than 10 billion yuan in 2022, "It's time to say goodbye to seven consecutive years of loss-making operations." NIO CEO Li Bin hopes to break even in 2024. He Xiaopeng's goal is to achieve positive operating profit by 2025, that is, the comprehensive gross profit margin should reach 17%.

Tesla cut prices, and the most dangerous is Xiaopeng. After the turmoil of the past year, Xpeng's product strategy is also changing.

"Sales is dignity, and the most important data performance of an automotive company." "Deep Net" learned that on January 18, Xpeng Motors CEO He Xiaopeng said at the internal annual summary meeting that sales are similar to chopping firewood, and more time and energy should be put into summarizing and sharpening knives at present, "knowing where to cut firewood in the future, rather than only chopping wood hard." ”

He Xiaopeng believes that although the Xpeng G9 and P7 facelifts in 2022 have not saved sales, but G9 and P7 are very successful products, I believe (sales decline) is only for a moment, in the next two years, Xpeng G9 and P7 can return to the top 2 of the subdivision track after continuous iterative facelifts.

Before the fourth quarter of last year, Xpeng Motors' positioning was still between 150,000 and 300,000 yuan, and there was an intention to gradually increase the price and tilt towards 200,000-500,000 yuan. However, "Deep Net" learned that at this week's Xiaopeng internal summary meeting, He Xiaopeng made a major adjustment to product positioning, from the original gradual upward exploration to extend to both ends, positioning in the range of 100,000-350,000 yuan. "We expect to exceed 1.2 million units in 2027 (annual sales)."

From the great change of organizational structure at the end of last year, to this year's high-level change, Xpeng poaching to absorb former Great Wall and Geely sales talents. This year may become the battle of life and death of Xpeng Motors, He Xiaopeng emphasized internally: "If we 'don't break' we are just the difference between early death and late death, I don't pursue such a company, or it's exciting enough with everyone, or I'll die vigorously." ”

Tesla's production costs may fall by another 54%, and the growth rate of the energy business exceeds that of the automotive business

In the third quarter earnings conference call last year, Musk said that the 4680 battery that Tesla is developing has 5 times the energy of the 2170 battery, the vehicle range can be increased by 16%, the power can be increased by 6 times, combined with the improvement of materials and vehicle design, the production cost can be reduced by 54%.

In the fourth quarter of 2022 earnings call, Musk clarified the target time for the full mass production of 4680 batteries: 2024.

Recently, Tesla said that the 4680 battery has survived the most difficult period of mass production, and the current Tesla Fremont factory in California can produce enough 4680 batteries to support 1,000 vehicles per week, although this output is still far from the weekly production capacity of about 15,000 vehicles in the Shanghai factory, but it has become closer and closer to the production demand of 3,000 vehicles per week in Berlin and California factories.

"In Texas, one of the four production lines is already in production, and the remaining three are in the commissioning and installation phase." Andrew Baglino, Tesla's senior vice president of powertrain and energy engineering, said the goal of the 4680 battery team in 2023 is to provide cost-effective 4680 batteries for the Cybertruck, an electric pickup.

In addition to cost-cutting measures, revenue from Tesla's non-automotive business is also growing rapidly. Tesla's revenue is composed of four major segments: car sales, car leasing, energy, services and others. Among them, Tesla's energy business has grown faster than the automotive business, with energy revenue of $1.3 billion in the fourth quarter, a year-on-year increase of 90%.

Tesla energy products include energy storage and photovoltaic devices, energy storage battery products include Powerwall, Powerpack, Megapack commercial energy storage batteries, photovoltaic devices are mainly Solar Roof solar panels.

Among them, the delivery date of the Megapack energy storage system has been scheduled for the fourth quarter of 2024, and the price is also rising. Tesla's official website updated on January 26 shows that the price of a 1.9MW/3.9MWh Megapack energy storage system, including installation and tax, has risen by 1.2% to $2.6272 million.

In addition, Tesla's insurance business has also grown faster than the automobile business. Tesla CFO Zachary Kirkhorn said that insurance business data will not be split into earnings reports in the short term, but the growth rate is significant. Tesla's insurance business grew 20 percent quarterly, with annual premiums of $300 million as of last year's year. "In the states where we operate, an average of 17% of our customers use Tesla insurance products."

"It has a magnifying effect, which is important." Musk said that in addition to the revenue brought by the insurance business, there is also added value, "Tesla provides insurance for Tesla vehicles at competitive prices, which makes other auto insurance companies also provide better insurance prices for Tesla." "As a result, this minimizes repair costs for all Teslas worldwide."

In Musk's view, Tesla's profit margins are far more than that, and the improvement and popularization of fully autonomous driving in the future can bring Tesla a 100% gross margin. "Its value increases with the growth of autonomous driving capabilities, which is probably the largest increase in asset value in history."

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