Tesla wants to end the price war, but Xiaomi and other new players in the industry won't allow it.
On July 1st, Tesla, the "instigator" of the auto price war, announced a price increase of 10,000 yuan for the long - range version of the Model 3.
Two years ago, Tesla's price adjustments were a top - priority event in the industry. However, today, this piece of news only stayed on the Weibo hot search list for 1 hour and 9 minutes.
At the Davos Forum in 2017, Jack Ma once expressed his concerns about the trade war to the audience: "It’s so easy to launch a war. But it’s so difficult, almost impossible sometimes to terminate a war."
This law applies to almost all wars, including the Cold War, hot wars, trade wars, and even the auto price war. Tesla wants to end the price war, but the market doesn't agree.
On June 26th, the Xiaomi YU7 was launched, with a starting price 10,000 yuan lower than that of the Tesla Model Y. In just 3 minutes, it received 200,000 large - scale orders, breaking the first - sale record in the auto industry.
Facing domestic manufacturers, Tesla no longer has an advantage in technology, and its product update speed can't keep up with the needs of segmented customer groups. In the Chinese market, Tesla is gradually losing its pricing power.
Two years ago, Tesla opened the Pandora's box of the price war, but now it has lost the ability to close it.
01 Make up for the lack of technological innovation with price innovation
At first, no one realized what kind of storm Tesla was stirring up.
“China's 'new - energy vehicle startups' are still far from the break - even point and are not in a position to engage in a price war.” This was the judgment of a securities analyst when Tesla first cut prices in 2023.
It wasn't until almost all manufacturers joined the fray.
Source: First Electric
On the timeline of the price war, Tesla has been present at every key node. However, even without Tesla, the "invisible hand" would have pulled the trigger on the price war sooner or later.
Lei Jun, who has experienced competition in the mobile phone market, knows this well. "Price war is an inevitable path in market competition. Every industry becomes more standardized after going through this stage." Lei Jun said in an interview with CCTV last year.
The price war didn't start because of Tesla. Instead, Tesla was the first to meet the conditions for launching a price war:
Tesla's three - electric technology still has a certain competitiveness even today. It was also the first manufacturer to widely adopt the integrated die - casting technology in the automotive field;
It was the first new - energy vehicle manufacturer to achieve large - scale profitability. In 2021, the gross profit margin of its automotive business exceeded 30%, setting a record for global mass - production vehicle manufacturers;
While the "new - energy vehicle startups" were striving to reach the milestone of selling 100,000 vehicles a year, the annual production capacity of Tesla's Shanghai factory was approaching one million.
Coupled with the brand premium brought by Elon Musk and SpaceX, Tesla firmly held the pricing power of electric vehicles in its own hands.
The Shanghai factory started construction, was completed, and went into production in the same year. The "Tesla speed" shocked the world, and the "Shanghai speed" shocked Elon Musk for the first time.
Tesla obtained the pricing power of electric vehicles thanks to the "China speed"; now it is losing the pricing power also because of the "China speed".
In May 2019, Huawei's automotive business unit was established. In March 2021, Xiaomi officially announced its entry into the automotive industry. In just five years, these two cross - border manufacturers have made it into the top ranks.
In 2019, due to difficulties in financing, NIO abandoned its plan to build a factory in Shanghai and sold the stamping equipment it had ordered to Tesla. Li Bin, the founder of NIO, once revealed in an interview: "It would have taken Tesla a long time to order the stamping equipment at that time. I saved it at least six or seven months."
Five years later, although their sales volume is still lower than that of Tesla, in terms of technology and user experience, brands like NIO, XPeng, and Li Auto can compete with Tesla on an equal footing.
From Tesla's perspective, the domestic brands are catching up too quickly, causing it to lose its pricing power. From an industry perspective, there has been no disruptive technological innovation in the new - energy vehicle industry for a long time, which is the root cause of the intensifying price war.
Even beyond technology, there has been little business innovation. Since Tesla introduced the direct - sales model, there have been no new ways of selling cars for a long time.
If the innovation speed in technology and business models of an industry continues to slow down, then it's time for financial innovation to take the stage.
Zero - interest loans for five years, high - interest rebates, insurance discounts, fixed - price offers, reimbursement of competitors' deposit, zero - kilometer used cars, supply - chain finance... These issues have become so serious that the regulatory authorities have to step in.
However, the "visible hand" can only solve the problem of the form of competition.
How much should be invested in R & D? How should the product be defined? How should it be priced?
Who is my target customer group? Where should the marketing budget be spent? On whom?
The answers to these questions ultimately need to be found by the brands themselves, and the problem of the price war also needs to be gradually digested by the market.
After the launch of the YU7, Lei Jun stated that "we will firmly oppose involution and resolutely oppose price wars." However, the price of the Xiaomi YU7 is still 10,000 yuan cheaper than that of Tesla.
02 The total demand is insufficient, but the differentiated demand is far from being met
The slowdown in innovation is a narrative from the brand's perspective. From the consumer side, the reason for the intensifying price war is the insufficient total demand.
These five words don't need much explanation. Most people have a personal experience: there are more and more consumer subsidies, the opening rate of Pinduoduo is getting higher and higher, and even car salespeople have more and more time to play with their phones.
But is the decline in demand really just because consumers don't have enough money in their pockets?
On the first weekend after the launch of the YU7, there were long queues at many Xiaomi stores. Consumers never dreamed that one day they would have to wait in line for a test - drive when buying a car, just like waiting for a table at Haidilao.
The "table - turnover rate" is like a busy worker who just finished a night shift at Haidilao and then changes clothes to work part - time at Xiaomi Auto.
Xiaomi may be an extreme case, but other manufacturers are also reporting good news.
In the first month after its launch, the high - end Zunjie S800 received more than 6,500 large - scale orders. The 999 limited - edition NIO ET9 models were sold out on the night of the release. The monthly sales of AITO exceeded 10,000 units. The MONA M03 helped XPeng turn the corner...
These achievements prove one thing: The differentiated demand of Chinese car consumers is far from being met.
This doesn't conflict with the price war. The price war is just a general term, and its underlying logic is actually constantly changing.
If we take the launch of the Xiaomi SU7 as a turning point, the previous price war was about seizing market share, while the subsequent price war is about "grabbing customers".
Two years ago, the "dad - car" market was Ideal's comfort zone. Now, in the price range of 100,000 - 400,000 yuan, there is at least one "Ideal - like product" in each segment;
In the mini - car market where Wuling and BYD used to compete head - to - head, Geely Xingyuan has emerged as a dark horse;
As long as a new car from any manufacturer is priced below 300,000 yuan and has a less "old - fashioned" design, it can claim to be the first car for young people.
Each generation has its own Dream Car. Car manufacturers with some style hope to become the "BBA" in the hearts of the post - 95s and post - 00s.
Whether it's the "dads" switching from gasoline cars to electric cars or the Z - generation who haven't been influenced by gasoline cars, they are just part of the incremental consumer groups in the automotive market. Using the jargon of the Internet industry: the automotive industry has entered the stage of refined operation.
The needs of consumers in different regions, with different family structures, and different lifestyles vary greatly. There are opportunities to survive the price war in each segmented scenario.
In third - tier cities and rural areas with a higher fertility rate, consumers have a strong demand for family SUVs. Leapmotor seized this opportunity and became the best - selling new - energy vehicle startup.
In first - and second - tier cities, there are more and more small families with 2 - 3 members. The needs of single young people buying their first car and mothers with one child buying an additional car have contributed to Xiaomi's sales miracle.
Ideal's customer group includes both "dads" from multi - child families in first - and second - tier cities and "big brothers" from third - and fourth - tier cities. Ideal, which performs better than pure - electric cars in extremely cold weather and offers a better experience than gasoline cars, and has an appearance design no less impressive than Land Rover, is now more commonly seen than the Toyota Prado in many parts of Northeast China.
Obviously, as the technological gap between brands disappears, the differentiated user experience of products has become the key to sales success.
On July 3rd, after the launch of the XPeng G7, Nick, the product manager, sighed: "Previously, most models on the market were like 'well - rounded cars', neither outstanding nor bad, just achieving a balance. The biggest inspiration that the YU7 has brought to the market is that as the post - 95s and post - 00s enter the market, a large number of young consumers not only want a car without obvious weaknesses but also a car with outstanding strengths."[1]
The competition for customer groups is gradually becoming the main theme of the automotive industry, and the price war has become a means to accelerate the penetration of targeted customer groups.
03 New stage of the price war: Develop products for segmented customer groups and set prices for the general public
Ten years ago, consumers had a consensus on "what makes a good car". However, today, no matter how strong a car's product strength is and how high its sales volume is, there are always many people in the comment section who disagree.
In the past, the automotive market was in short supply, consumers had limited choices, and the evaluation criteria were relatively single. Today, the market is diverse, and each segmented customer group has its own evaluation criteria:
In the eyes of factory owners in the southeast coastal areas, the AITO M9 is the new - era Audi Q7;
For first - tier city moms, the Xiaomi SU7 is the new - era "34C" (BMW 3 Series, Audi A4L, Mercedes - Benz C - Class);
The best proof for a dad to show that he is a good man is having the Ideal Auto app on his phone;
For electric - vehicle purists, any car with one more comfort feature than Tesla should be excluded from the automotive category and classified as a home - appliance brand.
The praise of favorite brands and the indifference to competing brands from different customer groups verify the statement "The principal contradiction in Chinese society at this stage is the one between unbalanced and inadequate development and the people's ever - growing needs for a better life."
What caused the price war? How will it end? The answers lie in this statement.
Tesla's current decline is due to its failure to keep up with the people's ever - growing needs for a better life in terms of product iteration;
The counter - attacks of Leapmotor and XPeng and the rise of Xiaomi are due to their ability to fill the gaps in the unbalanced and inadequate development of the industry.
Most manufacturers still in the game have realized this problem. Press conferences that simply list product parameters are becoming rare. Most car manufacturers no longer expect their CEOs to become internet celebrities like Lei Jun. Instead, they are learning Xiaomi's formula for differentiated positioning:
(Excellent product + Differentiated outstanding experience) x Precise customer - group penetration x Competitive price = Blockbuster product
The logic behind this methodology is to shift from an engineer - centric mindset to a user - centric mindset. By defining products for segmented customer groups, brands can create targeted content to penetrate and convert customer groups.
Of course, as the largest durable consumer goods, the feedback cycle of automotive consumer demand to the design, production, testing, and manufacturing stages is much longer than that of fast - moving consumer goods. However, the traditional engineer - led model can no longer keep up with the monthly iteration rhythm of new - energy vehicles.
Therefore, some car manufacturers have initially established a feedback mechanism that connects the engineering, product,