Last week, Chinese EV manufacturer NIO debuted its first commercially available model, the ET7. With a price tag of around RMB 448,000, the ET7 is noted by various media outlets as being more expensive than Tesla’s Model Y in the domestic market. In an effort to expand its market share in China, Tesla is offering its electric SUV — the Model Y — at RMB 339,900. However, this low price applies only to the vehicles made at Tesla’s production plant in China.
Many EV buyers in China have recently switched to Tesla cars after hearing that the leading EV brand is cutting prices significantly for its cars manufactured in the home country. This, of course, has also dampened the launch of the ET7. However, NIO is insisting that Tesla’s pricing strategy has no effect on the orders for the ET7, and the news of order cancellations is just an unsubstantiated rumor that is being spread on the internet. William Li, founder and CEO of NIO, has stated that by cutting the price of the Model Y, Tesla is revealing the actual value of this car instead of offering a genuine discount that would benefit consumers.
After the release of the domestically produced Model Y in China, there are growing opinions suggesting that Chinese EV manufacturers need to be just as competitive as Tesla in pricing. In response, Li has asserted that Tesla operates according to the principle of cost pricing, so prices of its cars go down in correlation to a decline in their production costs. Li has also pointed out that for a long time Tesla has been earning a gross margin of just 20% for every sales of 10,000 vehicles. This indicates that the company is not cutting the price of the Model Y per se but showing the true value or cost of this particular vehicle.
Li in his take on Tesla’s promotion in China has stressed that Tesla is a very smart company and continues to play a major role in the popularization of EVs worldwide. He also believes that many valuable lessons can be learned from its operations. Nevertheless, Li wants both consumers and industry analysts to examine all aspects when comparing Tesla with other EV manufacturers and not just look at things that are happening on the surface. Li acknowledges that Tesla has achieved significant successes by following its own path; and in his mind, NIO must forge its own path as well.
According to NIO, the massive surge of orders for the ET7 following the official reveal of the vehicle caused its online ordering system to go down temporarily. This incident proves that NIO as a new EV brand and its first offering have been well received in the market. However, the company has yet to disclose the order figures.
EVs currently account for less than 50% of China’s car market. Li therefore contends that his company is still competing mainly with cars that are powered by an internal combustion engine rather than battery-electric models from other brands. Furthermore, NIO has a different mission compared with Tesla. The latter wants to make EVs affordable for everyone, whereas the former is focusing on car buyers that prefer the mainstream high-end models like the ones from BMW, Mercedes-Benz, Audi, etc.
Even though NIO’s strategy seems sound, it still attracts some criticisms. Li appears to be too audacious in his remarks about Tesla and his company. To carry out the plan that Li has envisioned, NIO has to surpass Tesla in terms of quality and thereby differentiate itself in the market. If NIO fails to do this, then first-time EV buyers in China will almost certainly choose Tesla instead. Some opinion-makers have also recalled that Taiwan-based automotive brand Luxgen once swore to dominate the high-end segment of China’s car market. Unfortunately, Luxgen exited the country last year.
(Photo credit: NIO.)
