The price of electric vehicles (EVs) is still on a downward trend, and this could potentially have negative implications for the industry. China’s premium EV brand, Zeekr, showcased discounts on its Zeekr 001 crossover-sized vehicle that were similar to those offered by Tesla’s Model Y.
The prices for three versions of the Zeekr 001 have been reduced by an average of $5,000, resulting in a new price range of approximately $40,000 to $52,000. Similarly, Chinese Model Y base prices have dropped to a range of about $40,000 to $55,000. This marks a significant decrease from the initial range of $43,000 to $60,000 earlier this year when Tesla implemented price reductions worldwide.
While price cuts can have various implications, they often indicate either a decline in demand or increased competition in the market.
Fortunately, Chinese demand for EVs has remained strong in 2023. According to Citi analyst Jeff Chung, battery-electric vehicle (BEV) sales in China have reached approximately 3 million units from January to July, showcasing a 23% year-over-year increase. Additionally, new energy vehicles (which include BEVs and plug-in hybrids) accounted for nearly 36% of all new car sales in July, rising by two percentage points from the previous month.
During this period, Zeekr successfully sold about 55,000 BEVs, representing a 127% increase compared to the previous year. Although this only accounts for 2% of the overall market share, it is still a noteworthy achievement. Meanwhile, Tesla sold approximately 294,000 BEVs in China during the first half of 2023, denoting a 50% growth compared to the previous year.
Chinese EV Demand in 2023: A Key Consideration for Investors
Backward-Looking Data and New Demand Weakness
While things may seem alright at the moment, it’s important to note that all the data available is backward-looking. This means that we are only seeing a reflection of the past. However, there is an interesting factor that investors should keep an eye on – Chinese EV demand in the coming months of 2023.
Price Cuts: A Double-Edged Sword for Investors
Typically, price cuts are viewed as bad news for investors. However, there is a scenario where these cuts can actually prove beneficial. If the costs associated with electric vehicle manufacturing are decreasing and lower prices are driving up demand, then price cuts could ultimately be good for business. In the case of Tesla, their price cuts have resulted in two consecutive record-breaking quarters in terms of deliveries, suggesting that these cuts have positively impacted demand.
Profit Margins: A Different Story
Despite the potential benefits of price cuts, profit margins tell a different tale. While some costs, like lithium, have decreased, profit margins have not managed to maintain the same level as prices continue to drop. In the second quarter, Tesla’s operating profit margin was just under 10%, a significant decrease from the nearly 15% margin observed a year ago.
Impact on Tesla Stock
Interestingly, Tesla’s stock did not show much reaction to the Zeekr price cuts. In premarket trading on Friday, Tesla’s shares only decreased by about 0.5%. At the same time, S&P 500 futures remained flat and Nasdaq Composite futures fell by 0.1%.
The Importance of Considering Zeekr Price Cuts
While it’s never advisable to overreact to a single data point or event, investors should definitely take note of the Zeekr price cuts. These cuts could have potential implications for the market and should be carefully considered.
Tesla’s Stock Performance
As we approach Friday’s trading session, it’s worth mentioning that Tesla’s stock has experienced significant growth this year, rising by approximately 100%. However, it’s important to note that over the past 12 months, there has been a decline of about 14% in Tesla’s stock.
