MIC Model Y Price Cut Is Mainly Aimed at Legacy Luxury Car Makers
Author: CUI Dongshu (CPCA secretary general)
Original source: https://mp.weixin.qq.com/s/6yNVGNwa_bgjo_RszihtGA
Tesla China significantly adjusted MIC Model Y price. I think that Tesla localized its products and is now changing industry’s pricing rules, especially when it comes to tacit rules on high premium in SUVs.
Strong downward trends in 2020 NEV pricing are clear. The core feature that is strongly represented in SGMW Hongguang MINI and Tesla Model 3 is relatively big price decrease which helps them gain an increase in sales. Future NEVs will still have to cut prices in order to penetrate into ICE market and make more consumers acknowledge EVs.
- NEV high- and low-end
NEV high- and low-end, B-size and A00-size, show relatively strong development. The EV models that have shown rather strong performance are SGMW Hongguang MINI, Tesla Model 3, BYD Han, Chery eQ.
Thanks to Beijing license plate and Shanghai traffic restriction policies, NEVs have made exceptional performance. This year’s market demand in Beijing and Shanghai was primarily mid and full size vehicles.
Divergent trend among NEV OEMs in 2020 is relatively big, while legacy OEM are under rather big pressure as a lot of major models recorded visibly lower YoY sales.
2. Price cuts are the top priority
Based on the information from the updated Tesla official web, Tesla Model Y LR starting price was cut to RMB 339.9K from RMB 488K. Tesla Model Y Performance starting price was cut to RMB 369.9K from RMB 535K.
Downward pricing trend among NEVs this year is obvious. The core feature that is strongly represented in SGMW Hongguang MINI and Tesla Model 3 is relatively big price cut, with which they gained increase in sales. In particular SGMW which in the past has cultivated market in A00 EVs at around RMB 50K and has slowly launched Hongguang MINI by achieving gradual price transition, which brought a colossal increase in sales. Tesla Model 3 has also realized sales increase using price cuts.
The main effect of the price cuts is reflected in NEV vs ICE competition in that they have achieved a reversal in price-performance ratio. In the past, everybody thought NEV cost is relatively higher vs ICE, especially when it comes to the cost of batteries, and before first mass productions, general cost was thought to be relatively high. R&D and design expenses per single NEV unit are high but increased volume and price cuts bring a virtuous cycle. Increased sales drive cost cuts and further sales increase, achieving a scale effect with a virtuous cycle as a result.
3. Model Y price cut further changes competitive environment of luxury cars
Tesla Model 3 using continued price cuts has made a strong performance in luxury vehicle market. Q1 saw only 16K units, Q2 reached 30K, Q3 34K and Q4 still has a chance to get to 50K. So, generally speaking, the pricing increased Model 3’s price-performance ratio. In November, using its advantage in Shanghai it surpassed Audi A4 and became major B-size luxury sedan model. This was also in large part to price cuts.
Tesla Model Y LR starting price was cut to RMB 339.9K from RMB 488K. Tesla Model Y Performance starting price was cut to RMB 369.9K from RMB 535K.
After the price cuts, competitive price relations between Tesla Model Y and Audi Q5, Mercedes GLC, BMW X3 should see a clear change. Model Y price has certain advantages and more luxury vehicle consumers will be keen to buy it, especially in the big cities where Model Y sales will be assisted by license plate policies.
4. Tesla pricing system shows SUV low premium
Tesla is changing industry’s pricing rules as we speak.
Since Chinese auto product pricing system is the result of tax policies, namely consumer tax, in reality the engine capacity is at the core of the pricing system, and since SUV’s capacity is usually higher than the one in sedan, the consumer tax is obviously also higher. When you add import tariffs, high-end SUV price is a lot higher compared to high-end sedan, which consequently made Chinese consumers accept a pricing system in which SUV price is higher compared to sedan.
Since Tesla sells EVs, there is no engine capacity in the play, so there is not consumer tax either. Since there is no consumer tax, there is no premium between SUV and sedan, which brings an opportunity to increase the sales.
Among Tesla products, in particular between Model X and Model S pricing, Model X premium is not high, it is similar to Model S pricing. The sales show SUV and sedan premiums are low, achieving Model X’s to be higher compared to sedan.
5. Tesla and EV startups expand the market together
I do not think Tesla’s latest price cuts will have a significant effect on EV startups. The main reason is that Tesla’s main competitors are still legacy luxury car makers, while EV startup products compared to Tesla are more individual, special.
Currently, NIO, XPeng and other products are longer and more high-end compared to Tesla. They look better and are more unique. In particular brands like NIO that have a good service and a loyal circle of users. I think that the effect will not be big. Tesla price cut will affect legacy car makers the most.