Tesla's price cut has made the competition in China's NEV industry more intense, with competing models of the Model 3 and Model Y likely to follow, analysts say.
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Tesla cut prices for the entire Model 3 and Model Y lineup in China on Monday, raising concerns in the country's new energy vehicle (NEV) industry. So what does this mean for NIO, XPeng and Li Auto?
Tesla is likely facing macro weakness and somewhat increased competition in the local market, which has compelling electric vehicles that offer newer features at affordable prices, Deutsche Bank analyst Edison Yu's team said in a research note sent to investors on Tuesday.
In the context of growing competitive pressure, NIO is best positioned on a relative basis among the local Chinese startups, the note said.
"The premium market in China is still dominated by BBA gasoline cars which we think may start to shift more meaningfully next year as NIO ramps up its sedan models and XPEV/LI introduce several high-end SUVs," Yu's team wrote.
NIO is focused on the premium market and offers a unique ownership experience through its white-glove service and charging infrastructure, the team said.
Demand for NIO products is strong, and the new ET5 midsize sedan is expected to take share from the BMW 3 Series and Mercedes-Benz C-Class, according to the team.
In contrast, XPeng is likely most exposed to Tesla's price cut as its current and future model line-up competes most directly with the Model 3 and Model Y, the team said.
"That being said, our sense is this is very well understood by investors and XPeng stock has already been severely penalized on competitive concerns over the past few months," the team wrote.
Li Bo, an analyst at China-based Caitong Securities, said in a research note released Tuesday that Tesla has upgraded its Shanghai plant this year, and the ample capacity needs to be matched by more orders.
The recent drop in the depth of Tesla's order pool, combined with further expansion of the Shanghai plant's capacity, has led to price cuts and promotions, the analyst said.
Tesla's move has increased the intensity of competition in China's NEV industry, and competing models of the Model 3 and Model Y will likely respond with price cuts, according to the analyst.
Model 3's competing models include including XPeng P7, NIO ET5, BYD Seal, Changan Shenlan SL03, and BYD Han EV, while Model Y's competing models include NIO EC6, XPeng G9, Li Auto's Li L8, Li L7, and BYD Tang, the analyst noted.
As Tesla cuts prices and industry competition intensifies, its competing models will likely do the same, the analyst said.
Tesla's move will force automakers to adjust their pricing strategies, The Paper said Tuesday, citing an unnamed analyst at Soochow Securities.
NEVs in the price range of RMB 200,000-400,000 will be directly affected, while internal combustion engine vehicles in the same price range and models in the price range of RMB 100,000-200,000 may also be affected, the analyst said, adding that a new wave of price cuts in the sector could occur.
Tesla on Monday cut the prices of its entire Model 3 and Model Y lineup in China, with the starting price of its most popular entry-level Model Y in China being reduced to less than 300,000 yuan so it can take advantage of China's state purchase subsidy.
Huawei-backed NEV brand AITO has begun offering discounts to car buyers, becoming the first local brand to do so since Tesla's price cut, according to The Paper.