Two years ago, Tesla earned an average of 340,000 yuan for every car sold, of which 100,000 yuan was profit. Even if all kinds of miscellaneous expenses are taken into account, it can still make a net profit of 50,000 yuan per vehicle in the end. In the high-revenue, low-margin automobile industry, this is simply a ceiling-level existence. After two years of price war in China, especially after the table was turned upside down in 2023, Tesla sold more and more cars but made less and less money.
Now, the average revenue contributed by a car has dropped to 300,000 yuan, and its gross profit has dropped to 50,000 yuan, which is directly cut in half. This means that the price of the car has dropped and the profit margin has been compressed.
In theory, Tesla can continue to cut prices until all profits are squeezed out. After all, there are still many new car companies that have never made any money, and every car sold loses money. But Tesla most likely won’t do this.
The price war has caused headaches for Chinese car companies, and most of them are persisting.Tesla pulled everyone into a pit. They originally thought it was a pit of fire, but they didn't expect it to be a quagmire. They fell deeper and deeper into the pit.
Xu Changming, deputy director of the National Information Center, once posed an arithmetic problem to the big guys in the automotive industry: which one is better: selling 800,000 cars and paying 3 billion yuan a year, or selling 300,000 cars and not losing any compensation?
Some netizens commented: Neither is good, the best is selling 800,000 cars and earning 3 billion.
But in fact, the situation of most new forces is: they sold less than 800,000 vehicles, but lost 3 billion.
Leapmotor, which lost 1 billion yuan last year, has just resigned its president with an annual salary of 43.82 million yuan. Founder Zhu Jiangming said: The competition among car companies in 2024 will definitely be more intense and intense than before, and "there will be room for price reduction." Before he could finish his words, Tesla and Ideal increased their price cuts.
If the situation continues like this, some car companies will not be able to keep up.
Price war, the more we fight, the more we lose
In China, no car company can escape the price war. I have never stabbed an old car owner in the back, and I am embarrassed to call myself a new car.
In addition to "price reduction activists" such as Tesla, Xiaopeng, Leapao, and Nezha, Weilai, which has been unwilling to reduce prices, finally gave in in 2023. The ideal is to provide car owners with explicit or implicit discounts. The price reduction promotions of other brands cover almost the entire year of 2023.
The only exception is the Weimaraner. In the wave of price cuts in early 2023,It bucked the trend and raised prices, and then the company was on the verge of bankruptcy and was reorganized.
A direct impact of the price war is that cars are cheaper.
When it was launched in 2019, the starting price of the domestic Model 3 was 328,000 yuan, and the naked car in 2023 will cost only 220,400 yuan. After the new Model 3 was released on September 1, it was 28,000 yuan more expensive than the old model. Now the price has been significantly reduced, and it is already lower than the original starting price.The new Model Y is now also the lowest price in history.
In 2022, Tesla's bicycle sales revenue will be US$51,000, and in 2023 it will be only US$43,000, a decrease of 15%. After reaching a high of US$53,700 in the second quarter of 2022, it has dropped for six consecutive quarters, and is now less than US$42,600 (approximately 300,000 yuan), the lowest in history.
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NIO's cars have always been relatively expensive. In 2022, the revenue from a bicycle was 370,000 yuan, which dropped to 300,000 yuan in 2023. This has not happened before in its limited history.
Ideal's prices have been relatively stable over the past two years. The Ideal L9, which sells for more than 400,000 yuan, has pushed the price of bicycles up a lot. Then the relatively cheap L8 and L7 have increased in volume, driving the average bicycle price down again. Now Ideal's bicycle income is 320,000 yuan. However, on January 11, the price of the Ideal L series model was reduced by 33,000-35,000 yuan in a "fire sale", and the lowest transaction price dropped to 276,800 yuan.
Although Xpeng has launched the higher-priced G9, the prices of its sales pillars P7 and G6 have dropped, causing bicycle revenue to drop below 200,000 yuan in 2023. Lingpao’s bicycle income is less than 130,000 yuan.
Generally speaking, the prices of new cars from new car-making forces are going down. On the one hand, it directly reduces prices; on the other hand, it launches new models with lower prices to lower the threshold for users to purchase cars.
Every penny that car companies reduce may erode the company's profits.
In the past three years, Tesla's gross profit margin on car sales has increased steadily from 20% to a peak of nearly 30% in the first half of 2022. Subsequently, the Chinese auto market was involved in a price war, domestic brands became red-eyed, and Tesla's gross profit margin also continued to decline. It fell below 20% in 2023, reaching a minimum of 15.7%, and was overtaken by Ideal.
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The industry calls Tesla a "price butcher," and price cuts come at a cost.
In the first wave of price wars starting in 2023, after Tesla lit the fuse, Xiaopeng was among the first to follow up. At that time, in order to comfort old car owners, Xiaopeng used real money to compensate, which directly drove Xiaopeng's car gross profit margin into negative numbers.
Before the price reduction, Xiaopeng earned 12,000 yuan per car sold, but after the price reduction, it lost 5,000 yuan. Throughout 2023, Xiaopeng has been selling cars at a loss. The latest data for the third quarter is that the gross loss of bicycles was 12,000 yuan.
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Because of the high price of its cars and its high gross profit, NIO is still not losing money on selling cars, but its gross profit per bike has dropped from a maximum of nearly 80,000 yuan to less than 20,000 yuan.In 2023, the net losses of both Xpeng and NIO will expand.
Not long after the start of 2024, Tesla and Ideal took the lead in lowering prices, and their models hit the lowest prices in history. They have large profit margins and have the confidence to continue fighting price wars, while other car companies do not have such deep pockets.
Whether or not to follow this wave of price wars is a multiple-choice question facing all new car-making forces.
How much room for price reduction is there?
If the price war continues, how far it can go depends on how much room there is for price reduction.
Cost control is very important. For example, Tesla claims to price based on cost.One of the main reasons why car companies have been able to engage in price wars in the past year is that costs have decreased.
Among all the components of a new energy vehicle, the most expensive is the battery. The most important raw material for the battery is lithium carbonate. The cost of lithium carbonate directly determines the cost of building a vehicle.
The price of lithium carbonate will skyrocket in 2022, reaching a maximum of nearly 600,000 yuan/ton, causing battery manufacturers and car companies to suffer. However, like all mineral sellers, lithium carbonate is a cyclical industry and is greatly affected by supply and demand. Huge profits have attracted miners to significantly expand production, leading to overcapacity. Prices have been falling since 2023 and now fall below 100,000 yuan/ton. This gave car companies the confidence to lower prices.
Founder Securities has made a calculation. Taking the standard version of the BYD Seal model as an example, when the price of lithium carbonate drops from 500,000 yuan/ton to 100,000 yuan/ton, the bicycle will release 9,300 yuan in cost space.
The price of lithium carbonate is now close to the bottom, which also means thatThere is not much room for battery cost reduction.If car companies still want to reduce prices, they can only find ways from other aspects.
It is recognized in the industry that the most reliable way to reduce costs is to scale up. The automobile is a typical industry with economies of scale. The greater the sales volume, the lower the amortized cost of a single vehicle. At the same time, it can use its scale advantage to lower prices from suppliers.
The largest ones now are Tesla and BYD. In 2023, Tesla sold 1.81 million vehicles and BYD sold 3.02 million vehicles. With its scale and cost advantages, BYD expects net profit to exceed 29 billion yuan, a record high.
Tesla's scale advantage still exists, but it is difficult to reduce costs.According to its latest financial report, the sales cost of each vehicle has stabilized at around US$36,000 over the past year. Tesla said that this is very close to the limit of software and hardware cost reduction for this generation of model platforms.
“We are always thinking about how to reduce costs and continually review our expenses.We do not expect to maintain the level of cost reductions we have seen over the past few years, because there are still some limitations here. "Tesla executives said on the earnings call.
Costs cannot be reduced, but prices continue to fall. It is inevitable that Tesla's profits will be compressed. This is why Tesla will sell 500,000 more cars in 2023 than in 2022, but Tesla will not make more money.
Now the situation has changed. In the past, Tesla's pricing followed costs, and it would cut prices if it disagreed. Next, it depends on whether the management is willing to sacrifice profits to compete for the market. If Tesla values profits more, there won't be any big price cuts.
Those that still have a lot of room for cost optimization are "extensive" car companies such as Xpeng and NIO.In the past, Xiaopeng was criticized for "reinventing the wheel" and the platform and parts of each model were not universal. Later, He Xiaopeng started internal reforms and the situation improved a lot. However, Xiaopeng's gross profit margin has not yet turned positive. NIO's stall is too big, and the initial investment is too much. As a result, the cars are so expensive that they don't make any money.
Only by reducing these excess costs through refined management can price reduction be possible.
He Yuhua, founding partner of Hegao Capital, told Dingjiao,Many domestic OEMs still have a lot of room for cost reduction. For example, there is still a long way to go with Tesla's product architecture. Product development costs can be reduced by reconstructing the automotive EE architecture. The core depends on the OEM's ability to define products.
Another method is to "squeeze" suppliers.
BYD is good at this. An investor who pays attention to hard technology told "Ding Jiao" that BYD's background is that it is a company strictly based on supply chain control. Many startups want to join BYD's supply chain, but after joining, they face BYD's very strict cost control.
He Yuhua said: "BYD's suppliers, whether they are suppliers A or B, are under great pressure because they need to continuously and dynamically accept the assessment of the entire supply chain." BYD will even take out some parts with high gross profit margins and particularly large procurement scales to produce them themselves to reduce supply chain costs.
However, the profit compression space of auto parts is also limited. A research report from consulting firm Roland Berger shows that compared with before the epidemic, the pre-interest and tax profit margin of the auto parts industry has structurally dropped by 3%, and the profit margins of all types of parts have declined significantly.
Under such circumstances, without scale, the price war will be difficult to sustain.
I don’t want to lower the price, I have to lower the price
The price war in 2024 has started with Tesla and Ideal, but currently not many car companies are actually following up.
Many times, car companies really don’t want to lower prices.In the price war in 2023, most car companies will passively participate in the war, so much so that in March, a number of car companies launched price guarantee policies. Ideal, Leapmotor, Nezha, and Denza all issued announcements, promising to reduce prices to make up for the difference. But the promised "validity period" was only two months, and then the price war started again.
Later, in July, the China Automobile Association led 16 mainstream car companies, including BYD and Tesla, to sign a formal letter of commitment, agreeing not to engage in a price war. This is the "no price reduction alliance" ridiculed by the outside world. However, the alliance only lived for two days. The relevant provisions were deleted because they violated the spirit of the Anti-Monopoly Law. Tesla lowered the price in disguise the next day.
They don't want to lower prices, but they have to lower prices. Car companies are too conflicted.
The biggest problem for new car-making forces now is the inability to increase sales. Without sales volume, it is impossible to make profits. If you want scale, you have to cut prices, and price cuts erode profits.
"The homogeneity of new energy vehicles is too serious, and there is no gradient at the product level, resulting in price becoming the most important competitive factor. A price war is like everyone eating at the same table. As long as one person lifts the table, everyone will not be able to eat." A salesperson from an OEM told "Dingzhong".
In China, almost all "tables" are full. Once you are pushed off the table, it is difficult to get on the table again.Therefore, even if they lose money and make a profit, car companies have to follow the price reduction promotions to grab a little bit of market share.
When Jikrypton 001 cut its price last year, Jikrypton Vice President Lin Jinwen said that sales scale is more important than pursuing gross profit margins, and prices must be lowered to accelerate market expansion. Now he says that Jikrypton will not follow up on the price war in 2024, and the stability of price and equity will be the focus.
Due to excessive competition, some car companies are afraid to set high prices when launching new models, fearing that the market will not buy it and they will be passive if they lower prices.
Xiaomi SU7, which will be launched in a few months, is very cautious in pricing. Lei Jun has publicly asked fans for their thoughts on the price of Xiaomi's new car more than once before, and there has been a lot of speculation about the price. On January 30, news spread online that Xiaomi SU7 was already on the market, and the insurance company found that the policy price was as high as 360,000 yuan.
An industry insider who is familiar with public relations and communication told "Ding Jiao", "It is possible that Xiaomi is testing the waters to see the direction of public opinion, and use this as a reference to decide on specific pricing."
The addition of Xiaomi's new cars will intensify the involution of the car industry in 2024. Fortunately, Tesla is temporarily taking a break. The compact model it builds based on its next-generation platform will not be mass-produced until 2025 at the earliest. The price of this car is expected to be around US$25,000, and its sales volume may be twice that of Model 3/Y. That will be the starting point of the next round of price war.
Before that, some car companies with weaker financial strength may be defeated first.
Among the new domestic car-making forces, Ideal currently has the highest sales, the most profits, and the deepest cash reserves; the rest are still in the difficult sales climbing stage, none of them are profitable, and they need financing to sustain themselves.
Nezha and Jikry are sprinting towards IPOs, but there is currently no progress; Leappo used 20% of its equity to obtain 1.5 billion euros (approximately RMB 11.57 billion) in investment from the European Stellantis Group; Weilai raised two rounds of financing from CYVN, an investment institution in Abu Dhabi, with local tycoons in the Middle East accounting for more than 20% of the shares. At present, the founding teams of Leapao and NIO have given up their positions as the largest shareholders.
If a company is not profitable, it must continue to raise funds; if its products have no pricing power, it must be passively involved in price wars. The car market in 2024 will be even more volatile than it is now.