BYD down, Tesla up

wallstreetcn ·  11/28/2023 13:02

Source: Wall Street News
Author: Wu You

BYD's price reduction, Tesla price increase, another wave of reverse operation at a critical moment

New energy vehicle leader$Tesla (TSLA.US)$The products have risen four times in a row, and it has only just given many NEV companies deep in the “price war” a sigh of relief. Old rivals$BYD COMPANY (01211.HK)$However, the exact opposite choice was made at the same time, and a wave of price reduction operations caught the market by surprise.

Although this is not an official price reduction, the range and magnitude of BYD's month-long price cuts is not low. For new energy models in BYD's Dynasty series, such as Qin, Han, Tang, and Song, there are price reductions of varying degrees between 30,000 yuan and 10,000 yuan. Among them, the biggest reductions are basically plug-in hybrid models.

Price increases and price cuts are the rules of the market, but the two leaders who are the trendsetters of new energy vehicles made completely different choices at the same time. What is the reason behind this?

1. Another round of price selection clash between BYD and Tesla

In the previous article “Tesla's Price Rises Four Consecutive Strikes, the Price Butcher Is Still Unmoving”, I gave a detailed explanation of the reasons behind the reversal of Tesla's price reduction and quantity preservation strategy. There are still three main points:

1) The main price increases of Tesla's four consecutive increases are concentrated on Model Y, which can close the price difference between the updated Model 3 and Model Y, reduce internal competition, and increase the appeal of the updated Model 3.

2) Previously, Tesla's frequent price cuts raised consumer expectations. This price increase also broke the unrealistic thoughts of some consumers and prompted them to enter the market and buy cars as soon as possible.

3) As can be seen from the simultaneous decline in Tesla's sales and profits in the third quarter of this year, the effects of long-term price reduction promotions have been minimal, and sacrificing profitability to guarantee sales is meaningless. Instead, this is a good time for Tesla's profits to pick up.

At the same time, old rival BYD, which chose to cut prices in reverse, also has its own three reasons:

1) First, BYD must ensure that this year's annual sales target is achieved. BYD's sales target for this year is 3 million units, and as of October of this year, BYD's sales volume has reached 2.38 million units, and the target completion rate is around 80%. Judging from BYD's sales volume of 300,000 units in October, even if there is no month-on-month increase in the next two months, it is not a big problem to resolve BYD's remaining sales gap.

However, in the final year-end impulse phase, in order to guarantee their own sales, most new energy vehicle companies will launch large-scale promotional activities of varying degrees. BYD's move also adds a layer of insurance to the achievement of annual sales targets.

2) Second, the continuous decline in BYD's market share in the plug-in hybrid field has also aroused BYD's alarm. Basically, the new energy models that have been cut in price by BYD this time are plug-in hybrid models. For example, the Tang DMI Champion Edition 112KM series has a discount of 15,000 yuan, and the Han DMI Champion Edition and Qin Plus DMI are discounted 10,000 yuan.

As various new energy vehicle companies have launched their own plug-in hybrid or extended-range models, such as the Zero Race C11, Haval Big Dog DHT-PHEV, Geely Galaxy L7, and Weipai Blue Mountain DHT-PHEV, BYD's position in the domestic plug-in hybrid market has also been shaken.

The sales volume of BYD's latest plug-in hybrid models in October was only 136,000 units, significantly lower than the sales volume of pure electric models of 166,000 units. Unlike the situation where each of the previous two major models accounted for half of the country, its market share in the domestic plug-in hybrid field has also dropped from more than 65% before to around 50% today.

3) Finally, BYD is not in the same profit dilemma as its old rival Tesla. In the third quarter of this year, BYD's net profit reached a record high. For the first time, it broke through the 10 billion yuan mark in a single quarter and reached 10.4 billion yuan, up 82.16% year on year, up 52% month on month; gross margin also climbed quarterly, breaking 20% to 22.12%.

Therefore, even if BYD cuts prices for some models, it will not have too much impact on BYD's profitability.

2. “Far ahead” or the last straw of price reduction

Since asking the world about the new M7 model debuted at Huawei's press conference in September, this new model has become the focus of market and consumer attention. By the end of November this year, the total number of this new model has definitely exceeded 100,000 units, and as another popular model with extended range, the new Huawei M7 model, apart from posing a great threat to ideal products, will also put a lot of competitive pressure on BYD, which dominates the plug-in hybrid field.

The price of the new HUAWEI M7 model is around 250,000 yuan. It is also in the price range for the Tang DMI Champion Edition, Tang DMP, and Han DMI Champion Edition of the plug-in hybrid models that have been cut the most by BYD this time. Facing the launch of the M7 model, which has been recognized by the market, BYD's choice to cut prices is also a temporary avoidance of advantage.

After all, when the M7 first went on sale in the second quarter of 2022, they were caught off guard by the ideal, which directly reduced ideal sales volume. At one point, it was even overtaken by the aggressive Questionnaire.

However, in the plug-in hybrid sector, BYD will definitely not let go of this big cake. In the first 10 months of this year, domestic sales of plug-in hybrid passenger cars were 1,958,000 units, with a year-on-year growth rate of 82.6%, far exceeding 18.8% of pure electric passenger cars. At a time when the popularity of pure electric models has begun to slow down, only plug-in hybrid models can maintain high growth.

Therefore, even if many competitors are scrambling to enter the plug-in hybrid race track, BYD, which is full of ambition, will still choose hard steel to cut prices head-on. In particular, at present, although orders for the Huawei M7 have grown extremely rapidly since its release, the actual production capacity of the M7 has not been increased to the same level, and consumers who have placed orders will also face the risk of delivery delays.

BYD's choice to cut prices at this time has also strengthened the price-performance ratio of its products to a certain extent, giving those who have been waiting for orders and consumers who are still watching one more choice.

Another reverse operation of Tesla and BYD, which are also giants in the field of new energy vehicles, at a critical moment towards the end of the year is actually more of a reflection of the different situations of these two leading car companies. Under the current competitive pattern where the domestic NEV market is becoming more and more intense, this confrontation with competitors is bound to continue in the future.

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