China's EV price wars continue in world's largest EV market

Things are spicing up in Tesla's (TSLA) latest EV pricing bout with Chinese competitors in China's auto market, this time with Li Auto (LI) as both companies slash prices on electric vehicle models.

Yahoo Finance's Akiko Fujita explains the multi-year timeline of EV price cuts from Chinese auto manufacturers — some noted to be more affordable on average than US counterparts — as China accelerates faster into electrification trends.

For more expert insight and the latest market action, click here to watch this full episode.

This post was written by Luke Carberry Mogan.

Video transcript

SEANA SMITH: The EV pricing war is heating up in China. Shares of Tesla now sinking this morning. And China's Li Auto falling to an 11-month low after both companies cut prices. Joining us now with the latest on this is our very own Akiko Fujita. Akiko.

AKIKO FUJITA: Good morning to you, Seana. Yeah, it certainly felt like a race to the bottom, if you will, in the world's largest EV market. That latest price cut coming through from Li Auto applies to four out of the five models for the carmaker. We're talking about roughly 5% of the existing sale price. So about $4,100 off of what it's selling for right now. That comes one day after Tesla slashed prices for four of its models sold in China. Just for some context here, the Model Y is now selling for $34,502 roughly. Compare that to $42,990 in the US. That's the starting price for a Model Y here. So we're talking $8,500 roughly price difference between what's being sold in the US as well as China.

Now, this is just the latest in an ongoing price war that began all the way back in October of 2022. If you'll recall, that's when Tesla fired the first shot slashing its prices. Since then, nearly all of China's car makers have followed suit here. BYD has been among the most aggressive, slashing prices by more than 7% since the beginning of the year. Just last month, they slashed the price of its most affordable EV, that's the Seagull, now selling at $9,670. We're talking about less than $10,000 here. More than 30 of those brands have slashed prices in the first four months of this year alone.

Now, the question is, what does the demand look like in China moving forward? On that front, we've got a bit of a milestone over the weekend here. Data coming through from the Passenger Car Association showing that new energy cars surpassed ICE vehicles in China in terms of new car sales. So we're talking about the numbers here, that made up over 50% of car sales in the first two weeks of April. And yes, it's just the first two weeks of April but that points to an overall trend that we have been seeing in China here.

So 50% adoption, you compare that with 10% in the US, that's a significant number here. The data shows overall car sales were down about 11% year-on-year. But new electric vehicles, which includes battery electric vehicles, as well as plug-in hybrids increased 32% year-on-year.

Now, we're talking about China of course because it is the largest EV market in the world. If you look at where the market share is globally, China makes up more than 55% of overall global EV car sales. Those are numbers from 2023 coming through from Canalys. But the state planner over in China today saying you can expect the price war to intensify because the sheer amount of cars that are in the market.

And that's been a big concern not just in China, but over in Europe, as well as in the US. The statement coming through Monday from the National Development and Reform Commission says they expect more than 110, yes, 110 new energy vehicle models to launch this year, among the 150 new vehicles that are debuting in 2024. The NDRC, they said they expect market demand for these new energy cars to grow by 2.1 million units this year. Seems like a lot but that's a little lower than what we have heard from the major carmakers, including BYD. They were expecting combined deliveries about 2.3 million units for 2024. So guys, bottom line here, expect the price wars to continue because more and more EVs are coming online in China.

SEANA SMITH: Doesn't sound like we're anywhere close to this EV pricing war being over or hitting a bottom there, Akiko, given the number of new models that you were just talking about there, given the fact that it seems like we're still in this race to the bottom at this point. Akiko, thanks so much.