China’s Xpeng Motors (NYSE: XPEV) has lowered car prices in China following the footsteps of Tesla. Markets now fear a global price war as EV (electric vehicle) competition heats up globally.
Xpeng Motors has reduced the prices for multiple models including the best-selling P7 sedan whose starting price it has cut by around 12.5%. It has also cut prices for G3i and P5 models. However, the company has not revised the prices for the newly launched G9 model.
The price cuts come shortly after Tesla lowered car prices in China. The company lowered car prices in China shortly after its Q3 2022 earnings release also. Tesla recently slashed prices in the US and Europe also. The company’s price cuts angered buyers who had taken vehicle deliveries shortly ahead of the price cuts.
Meanwhile, Xpeng Motors has offered free maintenance services to those buyers who recently took deliveries. Notably, Xpeng Motors’ deliveries sagged in the back half of 2022 and fell behind rivals.
Xpeng Motors delivered 11,292 cars in December which was almost double its November deliveries. Its deliveries were however lower than the corresponding month last year. Xpeng Motor’s deliveries have trailed Li Auto and NIO for the last few months.
Xpeng Motors’ cumulative deliveries reached 258,710 at the end of 2022 which is only marginally ahead of Li Auto. At one point, Xpeng Motors looked set to surpass NIO in terms of cumulative deliveries but now risks falling behind Li Auto also.
Xpeng Motors delivered 22,204 cars in the fourth quarter and 120,757 in 2022 which trailed both Li Auto and NIO.
Xpeng Motors Lowers Car Prices as EV Competition Heats Up in China
Xpeng Motors’ price cuts point to the growing competition in the EV industry. China is home to some of the well-known EV companies like Xpeng Motors, Li Auto, and NIO. Even Polestar produces all its cars in China even as its technically headquartered in Sweden.
BYD, which sells the most NEVs (new energy vehicles) globally is also a Chinese company. BYD sold almost 1 million EVs in 2022 and analysts expect it to surpass Tesla and become the largest EV seller this year.
China is the world’s largest EV market. It has been promoting EV adoption in the country as it tries to wean away the economy’s reliance on oil imports. China is the world’s largest automotive market as well as oil importer.
The country sees electric cars as a key pillar of its “Make in China 2025” strategy. China has also taken a lead in autonomous cars. In December, Baidu (NYSE: BIDU) started offering robotaxis during the night in Wuhan.
EV Price War Might Take a Toll on Profitability
Most EV companies including Xpeng Motors are posting losses and a price war would be the last thing that they would have wanted. Even Tesla’s margins might take a beating after the price cuts but the company would hope to offset that with economies of scale as new plants ramp up production.
However, a price war might be yet another blow for cash-starved and loss-making startup EV companies, many of which are anyways facing trouble in raising cash.
EV stocks slumped last year even as global EV sales accounted for almost 10% of total car sales in the year.
Tesla lost a whopping 65% last year and had its worst year ever. Many names like Arrival, Lordstown Motors, Nikola, Rivian, Lucid Motors, and Xpeng Motors fell to their all-time lows.
However, after the recent slump, some analysts see Tesla stock as a buy. There is a guide on buying Tesla stock.
Xpeng Motors Stock is Falling Today
Xpeng Motors stock is meanwhile trading lower in US premarkets today after the company announced price cuts.
Xpeng Motors reported a net loss of around $330 million in the third quarter of 2022. While losses narrowed slightly from the previous quarter, they were significantly higher than in the third quarter of 2021. Its gross margin also fell by 90 basis points YoY to 13.5%.
It ended the quarter with cash and cash equivalents of $5.64 billion. The strong cash position would help the company as the price war could put further strain on the gross margins.
NIO also reported a squeeze on its gross margins in the third quarter of 2022 amid high inflation and the metric stood at 13.3%. The company has partnered with Chinese tech giant Tencent for self-driving cars.
Last year, Deutsche Bank said that the worst looks over for NIO and reiterated its bullish call on the company. There is a guide on how beginners can buy NIO stock.
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