A slew of automakers in China have banded together and pledged to regulate how they market their EVs and avoid further price wars to help stabilize a booming market for consumers. Chinese EV automakers like NIO, XPeng, and BYD have been joined by the likes of Tesla to promote healthy competition and less “bad blood” overseas. But is this good for competition or is this cartel behavior?
It has been happening all over the globe, but the EV price wars in China were truly ignited at the start of this year, as Tesla slashed the MSRPs of its Model 3 and Model Y vehicles by about $7,000 each – sparking concerns over demand for the world’s most popular automaker overseas.
Tesla showrooms were flooded with Chinese consumers the next day, not to buy, but to protest. The American automaker had been slowly increasing the price of all of its EV models in China the past two years without any discounts, then suddenly leaned down to kick off 2023. Customers who had just purchased a shiny new Tesla in late 2022 however, were furious.
Historically, Tesla has increased gross margins with cost improvements and has only adjusted its pricing when it needs to create more demand. On paper, Tesla is already the world’s largest automaker by market cap, but its price manipulation offered a real-world study in global economics as its cuts sent shockwaves throughout the global EV market, including China.
Some automakers like BYD and XPeng scrambled to lower their prices to remain competitive, while others stood their ground. For instance, NIO’s CEO William Li said the company would not partake:
Model 3 and Model Y are less complex in functions and configurations compared to Chinese car brands, such as BYD, so it cuts prices to challenge its rivals. 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.
Whether NIO’s chief wants to admit it or not, Tesla’s strategy worked. The automaker just blew through expectations by reporting over 466,000 deliveries in Q2 of 2023, besting its own record a quarter before. Now however, Tesla looks like it’s ready to play nice with its market manipulation and has joined a dozen other EV automakers in a pledge to help stabilize prices for the good of the consumer.
EV automakers band together to end price wars in China
Earlier today at the 2023 China Auto Forum in Shanghai, the China Association of Automobile Manufacturers (CAAM) has helped facilitate a pledge signed by 16 major automakers vowing to uphold fair market order in their industry.
The pledge is signed by CAAM four months after the association called for a market-wide cooling off of price cuts between competitors, especially as automaker began to use marketing strategies to take digs at other companies in the country. The automakers that signed today include China FAW, Dongfeng Motor, SAIC Motor, Changan Automobile, BAIC, GAC, China National Heavy Duty Truck, Chery, JAC, Geely, Great Wall Motor, BYD, NIO, Li Auto, XPeng Motors, and, last but not least, Tesla. Here’s an excerpt from the commitment letter posted by CnEVPost:
First, we will abide by the rules and regulations of the industry, regulate marketing activities, maintain a fair competition order, and not disrupt the fair competition order of the market with abnormal prices.
Second, we will pay attention to marketing methods, will not exaggerate or conduct false marketing, not to mislead consumers to attract attention and increase customer acquisition.
Third, we will put quality first, use quality-oriented, high-quality products and services to meet the people’s needs for a better life.
Fourth, we will actively fulfill our social responsibility, and take an active role in helping to stabilize economic growth, increase confidence and prevent risks, and work together to make a contribution to national economic growth.
It is important to note, however, that this pricing commitment is self-regulatory and by no means legally binding. Still, it shows good faith among a myriad of different EV automakers in China that should help stabilize price wars overseas… at least for the time being.
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