Tesla & BYD Cut Prices Further in China!
The electric car market in China is getting hotter and hotter, and more and more competitive. The big dog in the market is BYD, while Tesla’s Model Y and Model 3 are routinely at the top of the model sales chart. Searching for more sales, BYD and Tesla cut prices at least a few times in 2023, and it looks like that trend is continuing in 2024. Both BYD and Tesla are engaging in price cuts and consumer incentives yet again this week.
Tesla just unleashed insurance incentives in China today, among others. “Customers picking up existing inventories of Model 3 sedans and Model Y SUVs by the end of March would be entitled to a maximum of 34,600 yuan ($4,807.76) worth of incentives, Tesla said in a post on its Weibo account,” Reuters reports. Nearly $5,000 in incentives? That’s a lot in China, where Tesla’s prices were already at their lowest level. But that’s apparently the price of moving high volumes and keeping a good position in the biggest EV market in the world (which, of course, strongly influences Tesla’s global sales and finances).
“Among the incentives are a 8,000 yuan discount in car insurance products with partnerships with Tesla, and a 10,000 yuan discount if the buyer chooses a change of paint. Tesla also offers limited-time preferential financing plans that could save up to 16,600 yuan for purchases of Model Y.” Those are discounts of $1,126 on insurance, $1,407 on paint, and $2,336 on financing for those in the US who think much better in US dollars.
But BYD, the market leader by at least a few laps, was first to make such moves. Earlier this week, BYD cut prices significantly on the Han and Tang (by 10–15%). “The products came on the heels of BYD’s introduction of a new version of its Dolphin hatchback and newer plug-in hybrid sedan Qin Plus DM-i last week, both also at lower starting prices,” Reuters writes. “The pricing indicates that BYD is giving bigger discounts on most of these models than last year. The automaker lowered the starting price for the Qin Plus EV and hybrid by 15% and 20%, respectively, versus price cuts of 8% and 11% respectively for the two models in 2023, Reuters calculations showed.” BYD didn’t change the starting price of the hybrid Tang from 2022 to 2023, but it just dropped the price by 14% for the 2024 model year. Then, earlier today, BYD lowered the starting price of its Song Pro hybrid SUV by 15.4%.
All of this price cutting can come from lower supply chain costs and/or lower operational costs, but more likely than not (much more likely than not), both of these companies will take a hit on their gross margin as the cost of keeping sales volumes up. The questions that follow are: How much will this hit gross margins? How much will those gross margin hits hurt the companies’ stocks? How big and how long lasting will the sales bumps be? Will these companies find themselves in a similar situation in a quarter or two but not have much room left to cut prices and offer incentives? Have they created a bit of a vicious cycle where consumers are constantly expecting price cuts around the corner? There are a lot of questions, and they grow stronger with each new round of price cuts.
Featured image courtesy of @JayinShanghai
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