Chinese EVs From Strength to Strength

And More Blind Them With Bullshit From Musk as Tesla Fades

All of the growth is in China with only the Chinese manufacturers benefitting, slow or no growth in Europe and the US with the Chinese also benefitting. The Chinese market becoming even more brutally competitive while it continues rapid growth. The Chinese manufacturers also increasingly moving into the world outside China, Europe and the US. The Japanese and German ICE manufacturers in huge trouble in China, and Tesla struggling to maintain sales and margins in all markets. And of course, Elon Musk has to come up with some new hopium BS to keep the stock price up.

China: Price War & New Models

The big news in the Chinese market is the aggressive entrance of some new big players, the electronics companies Huawei and Xiaomi, and the intensifying price war. The successes of the GAC Aion and Li Auto brands had already increased the level of competition, and both Geely (Volvo, Geometry and Zeekr brands) and SAIC (MG, SGW brands) had also increased sales. For example the new Geely-Zeekr 007 betters the Tesla Model 3 at a significantly lower price; starting at the equivalent of US$29,000 with a 300 EPA mile range; it received 30,000 orders in the first month after release.

But the new players with deep pockets have driven the level of competition to a whole new level. In Q4 of 2023 and the start of the first quarter of 2024, both Li and GAC had gained market share with their new models but even they lost footing as Geely, SAIC and BYD cut prices and the Huawei-Seres Aito brand took off; Aito went from 5200 sales in August 2023 to 31,727 in March 2024.

The updated Aito M7 had 130,000 firm orders in the four months since its launch in September 2023, but with the price war even that model is now being discounted by 8% to about US$32,000; a premium SUV at less than the price of the Tesla Model Y. Aito also has the M5 sportier SUV, based on the same platform, which is scheduled to be updated on April 23rd probably with both better specs and lower prices.

The biggest splash though has been made by the Xiaomi SU7 sedan, a Model 3 competitor, which was priced at the equivalent of US$29,840 when it was launched on March 28th; US$7,000 less than the much older but recently face-lifted Model 3. The SU7 received over 100,000 orders in just the first few days afters its launch. The company has now announced that it plans to introduce an SUV model before the end of the year, a direct competitor to the Model Y.

Only three years after announcing their entry into the EV market, Xiaomi have an extremely able direct competitor to the Model 3 produced in an extremely advanced factory. Compare this to the failed efforts of Apple to move into EVs; both Huawei and Xiaomi have succeeded where Apple failed. Or even the slow pace of new Tesla model introductions.

Adding to the competition is BYD’s drive to accelerate the move from ICE to EV through cutting prices to match ICE prices and bringing out more hybrid models with very high combined (ICE plus battery) ranges. For example, the BYD Seal BEV sedan (a Model 3 competitor) has been reduced to the equivalent of US$25,000 (significantly less than the Model 3). Within the next few months, BYD will bring out the Seal 06 PHEV, fifth-generation DM-i hybrid system, which will have a combined (ICE plus battery) range of 2,000 km and have a very low electricity consumption rate.

BYD also brought out a new version of its up-market Denza brand N7 (a Model Y competitor), with a 21% price cut vs. the previous model (to the equivalent of US$33,000, a more up-market car at less than the Model Y) and a range of 700km together with many other upgrades.

BYD also at last brought out its main brand Model Y competitor, the Sea Lion 07, starting at the equivalent of US$27,600 (US$10,000 less than the Model Y base version). The most expensive version is priced at about the same as the Model Y base version. At the low-end, BYD updated its compact e2 and reduced its price to the equivalent of US$12,500, and introduced its somewhat larger compact EV Yuan-Up with the base version costing the equivalent of US$14,000.

The new and updated models, with incredibly low prices, provide stiff competition not just for Tesla but also for the mainstream foreign ICE manufacturers in China such as VW, Toyota, Honda and Nissan. In 2023, the foreign manufacturers already saw their market share shrink with VW falling from 14.8% to 14.2% market share, Toyota from 8.6% to 7.9%, and Honda and Nissan experiencing larger falls. At the same time BYD increased its overall China market share from 8.8% to 12.5%. These lower prices will also accelerate the rate of growth in EV sales in China, which had been thought to slow down in the new year but may in fact now grow by as much as the 37% of last year, or even more; resulting in an EV market share of well above 50% by year end. Growth that the foreign ICE manufacturers will not participate in as they see their ICE sales shrink, and growth that even perhaps Tesla may not participate in. Tesla’s China Q1 2024 sales were lower than in Q1 2023, while the overall EV market grew by over 30%; resulting in Tesla EV market share falling from 9.6% to 7% year over year.

With BYD making profits at its new lower price points, it seems to have a significant productivity advantage over Tesla Shanghai which at the end of 2024 had very slim to no profit margins on Chinese sales. With the discounting and low price financing provided in Q1 2024, Tesla Shanghai may have slipped into a loss on its Chinese sales. Although Tesla raised prices at the start of April, in a telegraphed move designed to pull forward sales into March to boost the Q1 sales figures, it is also offering about 10% discounts on its inventory models.

The greatest problem for the German and Japanese manufacturers (the US and other foreign manufacturers are all but gone form China already) is either their lack of competitive EV models (German) or previous decisions which have hidebound any move to EVs (Japanese). For Tesla it is their inability to get new models to market when its Chinese competitors are bringing out new models nearly every week. Below are just some of the upcoming new models for 2024, while Tesla can only provide a face-lifted Model Y. Perhaps foreshadowing the problems ahead, in the first week of April Tesla’s China sales collapsed to only 1,880 (perhaps suffering from the pull-forward of sales into March), compared to 46,250 for BYD, 5,570 for Li Auto, 4,140 for Huawei Aito, 3,220 for Geely-Zeekr, and 1,080 for a Xiaomi just starting its SU7 deliveries.

Europe

The European economy may stagnate at best in 2024 and this is reflected in the very limited growth prospects for that market, made worse by the removal of EV incentives by Germany and the halting of the French EV “social leasing” program (although some consumer price subsidies still apply for cars not produced in China). Within this relatively static market, Chinese manufacturers are making gains. In February Geely-Volvo had grown to a 9.9% EV market share in Europe. Geely’s success in Europe should increase with the introduction of the Volvo EX30 small SUV. This is part of an extremely successful Geely strategy of using purchased local brands (Volvo, Polestar) to drive foreign sales; with Geely becoming equal to BYD with a much higher share of exports. At the same time, Geely has recovered from a low performance in China in 2023 to gain a 9.3% EV market share in the first two months of 2024.

SAIC has also been very successful with its MG brand. BYD has been struggling in Europe, but that may have been due to its use of its limited export capacity primarily for the South East Asian markets. With its growth rate slowing in China, and its announced plans to open a factory in Hungary (within the EU), we can expect BYD to start focusing more on the European market.

In the first two months of 2024 the European market leaders of VW (VW, Audi, Porsche) and Stellantis (Abarth, Alfa Romeo, Citreon, Fiat, Lancia, Opel, Peugeot, Vauxhall etc.) have slipped in EV market share, while BMW remained stable, Mercedes Benz gained a percent and Geely-Volvo gained two percent. Tesla market share was helped by the face-lifted Model 3, but its European Q1 sales were still 9% below those of Q1 2024 and its EV market share dropped by over 2%. With the increasing competition from Chinese manufacturers and cars made in China by US and European manufacturers, in a relatively slow growing car market, there are increasing calls for protectionist measures by EU politicians.

Volvo already has factories in Europe, and BYD will build a factory in Hungary. We can expect more Chinese manufacturers to open factories in Europe as some form of “voluntary export agreement”, as was done with the Japanese manufacturers in the 1990s, may be agreed between China and the EU. With the European brand market share being destroyed in China, and with it up to 40% of those brands profits, China may have to be somewhat accommodating to the EU politicians and bureaucrats. Especially when China is becoming more and more a threat to the other parts of German, and European generally, industrial strength. The large Ford plant in Valencia, Spain may be quite an appealing target for the Chinese manufacturers. They can also focus on wiping out the European manufacturers in the world outside Europe and the US, having gained an upper hand in Russia due to the self-harming Western sanctions.

United States

In the past few years the US car manufacturers have raised the prices of their cars substantially, a situation only made worse by price-gouging car dealers. This has played well into the hands of Tesla as it has allowed their EVs to be competitive with ICE vehicles while keeping margins high; resulting in the majority of Tesla’s profits coming from the US. Aided additionally by the China tariffs and the IRA subsidies that benefit domestic manufacturers. Tesla had it as it good as it could get in the US.

But under the surface things were not looking that good, as Tesla sales grew less than the overall EV market as other manufacturers slowly developed and produced EV models; with the biggest competition from the European and South Korean brands. In 2021 Tesla’s US BEV market share was 72.5%, in 2022 64%, and in 2023 55%; that fall in 2023 was in spite of the major Tesla price cuts that reduced its fat margins. In Q1 2024, Tesla has had serious problems ramping up production of its face-lifted Model 3 and seems to be experiencing Model Y demand issues. Its US sales will have significantly fallen in Q1 2024 compared to Q1 2023, with global production 46,500 cars greater than global deliveries. More than half of that excess production is in the US, with US$7,500 discounts being offered to clear that inventory; discounts which will reduce a large chunk of the Tesla US margins that are the main basis of its profitability. Added to that is the 26,000 Teslas left to dump on the second-hand market by Hertz, which will not help sales of new Tesla cars.

Overall US new vehicle sales rose 5% in Q1 2024 compared to the previous year, but EV sales only grew by 2.7%. With dealer inventories returning to pre-COVID levels the previous price gouging is being reversed, with the average sales price down 3.6% on a year ago and manufacturer discounts two thirds higher than a year ago. In the EV space the lack of growth in an increasingly competitive part of the market has forced manufacturers to significantly cut prices, as with Ford cutting the price of the Mustang Mach-E by up to US$8,100. The removal of many cars, including some Tesla models, from eligibility for the IRA subsidies has certainly not helped sales. The much increased interest rates have also pushed buyers toward cheaper ICE models, and away from the more expensive EV models.

There is also a possibility of a doom loop within the US vehicle market, with the buyers who bought vehicles at US$10,000 or even tens of thousands of dollars over inflated MSRPs with up to 7-year car loans, during the past few years, being 30% or more underwater on those loans. New vehicles now sell at or less than MSRP, which means that the used vehicles will be worth substantially less than the MSRP plus dealer “market adjustments” that they were sold at; creating a huge gap between the remaining loan amount and the value of the car. The result will be that the owner hangs onto the vehicle longer, reducing new vehicle sales, or the owner defaults and the vehicle is repossessed. In the latter case, an additional vehicle lands on the second-hand vehicle auction block and the credit score of the defaulter is greatly reduced, substantially reducing the price they can pay for a new purchase. With increasing defaults and repossessions, banks will also increase their lending standards leading to another reduction in demand. The US vehicle market may be stuck in this loop for a number of years, especially if interest rates stay higher for longer (reducing the price that can be paid for a given monthly loan payment). Both sales and prices of new and used cars will be negatively affected.

All of the tail winds that allowed Tesla to keep its margins high are disappearing, while at the same time competition is still increasing. A big factor in 2024 may very well be Geely-Volvo who have a factory in the US, with there introduction of the well-priced (US$36,245 to US$47,895) small SUV EV EX30 in the summer of 2024. That pricing is equal to the current Model Y pricing after the US$7,500 inventory discount. The competitiveness of the Model Y will also not be helped by the pushing back of its face-lift in the US until 2025, a car that has not been even face-lifted since its launch in March 2020.

According to the Kelly Blue Book, the German car makers gained market share in EVs, with BMW doubling its sales in 2023 Q4 to a 4.5% market share, Mercedes Benz 90% to 3.4%, Audi up 74% to 2.3%, Porsche 57.5% to 0.7%, and VW 12.7% to 3.4%; a total of 14.3% market share. Genesis, Hyundai and Kia grew 271.3%, 190.4% and 104.5% to a combined 8% market share. Rivian jumped 68.3% to a 4.3% market share and even Ford managed 27.5% sales growth to a 8.2% market share. Volvo hardly grew, but that may very well change in 2024 with the EX30. In the US Tesla sales are being eroded by the equivalent of a thousand cuts from a whole panoply of competitors - and that’s without the major Chinese players.

Some US financial analysts have forecast earnings of as low as US$1 per share in 2024 for Tesla, which for a company that may have three years at least of profit shrinkage (2023, 2024 and 2025), would point to a radically lower share price than the current US$176. So, of course Mr. Musk had to immediately ramp up the shiny bauble “promises” by announcing that the Robo-taxi will be a reality in August 2024! This is what Tesla has promised now for many, many, many years without delivering and the current version of “Full Self Driving” is certainly nowhere near being capable of driving a Robo-taxi. But there seem to be enough Tesla fanboys around to eat up the Musk hopium to halt the fall in the share price at US$160 and provide a bit of a bounce at least for now. We will see what reaction the Q1 results bring on April 23rd.

The World Outside China, Europe and the US

Australia

Australia is easily the biggest EV market outside of China, Europe and the US; EVs had an 11% market share in Australia in February 2024. Both BYD and Geely have made an aggressive entry into the market, and in February the top ten selling models were the Tesla Model 3 and Y, the BYD Atto 3 and Seal, the MG 4, the BYD Dolphin, the Kia EV6, the Volvo XC40 recharge, the BMW i4, and the Polestar 2. Volvo and Polestar are Geely brands and MG a SAIC brand. With aggressive price cuts by the Chinese brands, Tesla has been forced to significantly reduce its Australian prices. The MG4 is now cheaper than a Toyota Corolla, and Geely will be bringing the Zeekr brand as well as its pickup truck (“Ute” in the local parlance) to Australia (as well as New Zealand, Thailand and Japan).

Mexico

The Chinese have made rapid in-roads into the Mexican market, both as manufacturers and retailers. Mexico could of course provide a production platform for a Chinese invasion of the US, although the US government is becoming more and more resistant to Chinese EV makers - even within the North American free trade zone of Canada, the US and Mexico.

Brazil

Both BYD and Great Wall Motors have announced plans to build EV plants in Brazil (using former Ford and Mercedes factories!), building a base in Brazil to sell to all of South America not just Brazil. They are far ahead of any of the Western manufacturers in what is the sixth largest car market in the world, with ICE sales dominated by Fiat, VW, Chevrolet, Toyota, Hyundai, Renault, Jeep, Nissan and Honda. BYD has already become the #10 car brand in the country, and every ICE sale replaced with an EV is a China-brand gain and a Western-brand loss.

India

The Indian government has spent decades failing to develop the industrial strength that China and many others have developed in the past decades, with even much smaller Vietnam now having more manufacturing exports than China. With respect to the car market, the Indian per capita GDP is only US$2,100 compared to the Chinese US$12,720 (at market exchange rates). Even though India’s population may now be more than China’s, its car market has a much smaller potential with only 4 million sales in 2023 compared to 30 million in China.

Chinese car manufacturers have attempted to open up plants in India, especially with the extremely high Indian tariffs on imported cars (between 70% and 100%), but they have been stymied by protectionist and chauvinist attitudes. Other Chinese companies, such as Xiaomi have also met with such problems. The Indian government is also extremely corrupt and in bed with a handful of domestic oligarchs, with investment in the required infrastructure greatly lacking and open to “friendly” bidding.

India’s BJP government seems focused on protecting local producers, and somehow developing the country’s own EV capabilities after many decades of industrial failure. Mike the Car Geek below details some of the problems in trying to establish manufacturing plants in India, problems that have also stopped Tesla from opening up a manufacturing plant. India will once again be left behind in manufacturing.