© Reuters. Visitors check out a Tesla Model 3 car next to a Model Y displayed at a showroom of the U.S. electric vehicle (EV) maker in Beijing, China February 4, 2023. REUTERS/Florence Lo
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SHANGHAI (Reuters) – Lower prices have given a boost to Tesla’s (NASDAQ:) sales in China, but analysts — and even fans — are warning that the U.S. automaker is more rivals in the electric vehicle market. biggest in the world.
More immediately, Tesla’s price cuts in January boosted deliveries of its China-made vehicles 18% from December. Tesla’s wide profit margins have put it in a position to wage a price war with competitors in China and beyond, analysts say.
But they say Tesla has fallen behind its competitors in China in introducing new models, improving navigation systems and adding luxury interior touches or white-glove customer service to cater to a growing range of preferences. of electric vehicle consumers.
“Tesla is facing a serious problem of a very limited product mix,” said Cui Dongshu, secretary general of the China Passenger Car Association (CPCA). “Its slowness to respond to Chinese consumer preferences has led Tesla to a very passive position of relying on few means, such as price cuts, to stay competitive.”
Even Tesla’s own CEO, Elon Musk, has admitted that China is where his company could face its toughest competition.
Tesla did not respond to Reuters’ request for comment about its business in China. Grace Tao, Tesla’s vice president in charge of external communications in China, previously said the price cuts in China reflected engineering innovation and responded to Beijing’s call to encourage economic development and consumption.
The China Automobile Manufacturers Association expects plug-in hybrid and electric vehicle sales to rise 35% by 2023 to 9 million vehicles, nearly a third of China’s total new vehicle sales.
While Tesla has increased sales in China, its second-biggest market, it has also lost share. From 15% in 2020, its share of China’s EV market dropped by a third to just 10% in 2022, according to CPCA data.
Tesla offers two models in China, the Model 3 sedan and the Model Y crossover. That keep-it-simple approach has boosted scale and reduced costs.
After the latest price cuts, the Model 3 starts at around $34,000 and the Model Y starts at $38,000. But Chinese car buyers, who returned to showrooms this year after the end of China’s tough COVID-19 restrictions, are being courted by competitors offering a wide range of alternatives.
BYD, which surpassed Tesla by global sales volume last year and has a market value of more than $100 billion, offers more than 60 different versions of electric and plug-in hybrid vehicles. A much smaller but ambitious peer, Nio (NYSE:) has grown from two models to six in the same period and plans to launch five more this year.
“The aging product line is a real problem for Tesla,” said Yale Zhang, managing director of Shanghai-based consultancy Automotive Foresight. “Once BYD and other EV startups continue to lower prices, the effect of Tesla’s price cuts could wear off in the blink of an eye.”
NO U-TURN IN TIANANMEN
Tesla’s self-driving software and navigation systems, touted by CEO Musk as competitive strengths, have also been criticized by customers for slow updates and bugs on Chinese roads. Buyers of luxury EVs that employ drivers are less interested in paying more for software.
Chang Yan, a 34-year-old Chinese auto blogger who was among the buyers of the Model 3 in China in 2018, said his car still prompts him to make U-turns on Chang’an Avenue, which is closely guarded, near from Tiananmen Square, where these movements take place. forbidden.
“This is a stark contrast to Nio, (EV brands) Xpeng (NYSE:) and Li Auto, whose navigation aids have been working almost flawlessly,” said Chang, who also drives a Nio sedan.
Tesla has been considering a shift in its marketing in China, focusing more on energy efficiency, practical features and less on cutting-edge functionality, a person with knowledge of the matter said.
It has also been studying how its Chinese rivals, led by BYD, win customers in showrooms, especially in smaller cities, said the person, who declined to be identified, citing a lack of clearance to speak to the media.
One takeaway: BYD makes sure the drinking water bottles offered to showroom visitors are warm in winter in a nod to local preferences.
Tesla, which earlier this year promoted its China boss Tom Zhu to head global sales and production, is also giving its China sales team a more direct line to product development engineers for feedback. locals, the person with knowledge of the matter said.
LESS IS MORE?
To be sure, Tesla’s design aesthetic, with sparse interiors and synthetic leather, still appeals to many.
Cui Yang, a 31-year-old doctor buying a Tesla in Beijing after the recent price cut, said he was won over by “the minimalist interior styling and technological feel.”
On the other hand, Chinese brands like Nio and Zeekr tout their buttery-smooth Nappa leather and traditional luxury features like seats with massage functions aimed at both the passenger and driver experience.
Some EV manufacturers see that premium segment of the market growing rapidly in the coming years.
Li Auto targets EV buyers looking for family-carrying cars, who expect to pay above Tesla’s current price, starting at around $44,000, a sales category it expects to account for 10 million vehicles in sales. in the entire market by 2025.
Then there’s a ‘buy local’ challenge for Tesla.
Chinese consumers like Lin Wenwei, 50, want to support a Chinese brand, even though Tesla makes the electric vehicles it sells in China.
“I have always been more inclined to buy a domestic EV brand for the domestic industry,” Lin said as he tested a Seal sedan for his son at a BYD dealership shop in suburban Shanghai after buying a BYD Dolphin hatchback. for him.
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