Summary
- Tesla price cuts have boosted sales in world’s no. 1 EV market
- Tesla seen lagging on new models, tech updates, luxe interiors
- Tesla pondering China marketing shift, studying peers – source
Price cuts have given Tesla’s (TSLA.O) China sales a boom, but analysts, and even fans, caution the U.S. automaker needs to up its long-term game to avoid biting the dust of fast-moving rivals in the world’s largest electric vehicle market.
Most immediately, Tesla’s January price reductions pushed deliveries of its China-made vehicles up 18% from the previous month. Tesla’s strong profit margins have put it in a position to take a price war to competitors in China and beyond, analysts say.
But they say Tesla has fallen behind competitors in China in releasing new models, updating navigation systems, and adding luxe interior touches or white-glove customer service to serve the evolving range of consumer preferences for EVs.
“Tesla’s facing a serious problem of a very limited product mix,” said Cui Dongshu, secretary general of China Passenger Car Association (CPCA). “Its slowness to respond to Chinese consumers’ preferences has led to a very passive positioning for Tesla to rely on few means such as price cuts to stay competitive.”
Even Tesla Chief Executive Elon Musk himself has admitted that China is where his company could face its stiffest competition.
Tesla would not reply to Reuters’ request for comment on its China business. Grace Tao, Tesla’s vice president responsible for external communications in China, said previously the price cuts in China represented engineering innovation and answered Beijing’s call to promote economic development and consumption.
China’s Association of Automobile Manufacturers anticipates sales of EVs and plug-in hybrids to increase by 35% this year to 9 million vehicles – almost a third of China’s total new vehicle sales.
While Tesla has ramped up sales in China, its second-biggest market, it has also lost share. From 15% in 2020, its share of the China EV market dropped by a third to just 10% last year, data from the CPCA showed.
Tesla sells two models in China, the Model Y crossover and the Model 3 sedan. That keep-it-simple approach has driven scale and sent down costs.
After the latest price reductions, the Model Y starts at $38,000 and the Model 3 at about $34,000. But Chinese car buyers, avoiding showrooms this year after the end of China’s tough COVID-19 restrictions, are being courted by competitors selling a wide range of alternatives.
BYD (002594.SZ), which outperformed Tesla by global sales volume in 2022 and has a market value well over $100 billion, offers over 60 different versions of EV and plug-in hybrid cars. Much smaller but ambitious peer Nio (9866.HK) has gone from two models to six over the same period and wants to unveil five more this year.
“The aging product line is a real problem for Tesla,” said Yale Zhang, managing director at Shanghai-based consultancy Automotive Foresight. “Once BYD and other EV startups follow to lower prices, the effect of Tesla’s price cuts could vanish in the blink of an eye.”
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Tesla’s self-driving software and navigation systems, publicized by CEO Musk as competitive strengths, have also faced criticism from customers about slow updates and errors on Chinese roads. Luxury EV buyers who hire drivers are less interested in paying more for the software.
Chang Yan, a 34-year-old Chinese auto blogger, who was among Model 3 buyers in China in 2018, said his car still asks him to make U-turns on tightly guarded Chang’an Avenue near Tiananmen Square, where such moves are prohibited.
“This is a sharp contrast with Nio, (EV brands) Xpeng and Li Auto, whose navigation aids have been working almost perfectly,” said Chang, who also drives a Nio sedan.
Tesla has been pondering a shift in its marketing in China, centering more on practical features, energy efficiency and less on cutting-edge functionality, a person familiar with the matter said.
It has also been looking into how its Chinese rivals, led by BYD, win over customers in showrooms, particularly in smaller cities, the person said, asking to remain unnamed citing lack of authorization to speak to media.
One takeaway: BYD makes sure that bottles of drinking water given to showroom visitors are warm in winter in a nod to local preferences.
Tesla, which in early 2023 promoted its China Chief Tom Zhu to head global sales and production, is also giving its China sales team a more direct line to product development engineers to offer local feedback, the person familiar with the matter said.
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To be sure, the Tesla design aesthetic, with synthetic leather and sparse interiors, still appeals to many.
Cui Yang, a 31-year-old doctor shopping for a Tesla in Beijing after the recent price slash, said he was attracted by “the minimalist interior style and tech feeling”.
On the flip side, Chinese brands like Zeekr and Nio tout their butter-smooth Napa leather and traditional luxury features like seats with massage functions intended as much for the passenger experience as the driver’s. Several EV makers expect that premium segment of the market to grow quickly in coming years.
Li Auto (2015.HK) is targeting EV shoppers looking for cars that can carry families, who expect to pay above Tesla’s current pricing, starting at about $44,000, a sales category it forecast will amount to 10 million vehicles in market-wide sales by 2025.
Then there is a ‘buy local’ challenge for Tesla.
Chinese buyers like 50-year-old Lin Wenwei, who want to support a Chinese brand – even though Tesla produces the EVs it sells in China.
“I have always been more inclined to buy a domestic EV brand for the national industry,” said Lin while he was checking out a Seal sedan for his son in a BYD dealership store in suburban Shanghai – after buying a BYD Dolphin hatchback for himself.
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