NIO’s CEO William Li has stated that unlike in the US where Tesla dominates the market, the EV giant has little influence over electric vehicle prices in China. This comes after Tesla reduced prices on some of its most popular models, sending shockwaves throughout the industry as other EV makers cut prices to remain competitive.
The price cuts created a negative spillover effect, and a lot of China EV brands’ order backlog suffered significant order cancellations. Over 40% of EV and ICE brands, including BYD, offered discounts or subsidies following the Tesla price cuts, indicating softening demand.
Shanghai-based EV maker NIO, however, has opted not to participate in the EV price wars, according to CEO Li Bin. Li noted that blindly cutting prices will create ruthless competition in China, and NIO’s gross margins are too low right now as they scale production to take part.
Tesla may 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. The 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.
NIO delivered 122,000 EVs in 2022, up 24% from 2021, with shipments rising over 20% in the first three months of 2022 year-over-year. The company had back-to-back record quarters in Q3 and Q4 to finish out the year. However, rising lithium prices and vehicle upgrades caused NIO’s gross margins to fall from 18.9% in 2021 to 13.7% in Q4 2022.
Li is confident that NIO will get back on track, reiterating that NIO’s gross margins will be between 18% and 20% during Q4 2023 as the company scales operations.
In the US, Tesla has pricing power, beating expectations by delivering a record 422,875 vehicles in Q1 2023, further expanding the gap in the US EV industry. Tesla’s CEO, Elon Musk, wants the company to become the best manufacturer in the world and believes that its efficiency is Tesla’s strongest competitive advantage, with gross margins climbing to 25.6%, among the highest in the industry.
