The trend of price reduction and promotion is reshaping the pricing system of China's automotive consumer market. Some automotive brands and manufacturers are seeking new pricing strategies, and consumers are also re understanding the pricing "routines" of automotive products.

　　In the first quarter of this year, the wave of price reductions and promotions swept through the entire Chinese car market. According to incomplete statistics, over a hundred car models and products from over 40 car brands have participated, and relying on "limited time promotion" methods such as local and manufacturer subsidies or dealer price reductions, we strive to "exchange price for quantity" to ensure market share. However, although the price reduction competition has become increasingly fierce, the final effect reflected in the car market transcript is not "hot". The production and sales data released by the China Association of Automobile Manufacturers on April 11th showed that in the first quarter, the production and sales of automobiles completed 6.21 million and 6.076 million units, respectively, a year-on-year decrease of 4.3% and 6.7%, with a slight decline compared to the same period. The overall economic operation of the automobile industry still faces significant pressure.

　　Tesla Sacrifices Profits to Lead Price Reduction Tide

　　Tracing back to the beginning of this price reduction promotion wave, it was Tesla's global significant price adjustment launched in January this year. At that time, the Tesla Model 3 and Model Y models were lowered by 20000 to 48000 yuan in the Chinese market, with discounts exceeding 10%. Subsequently, it promoted the "price reduction and market protection" strategy in multiple markets as a powerful means to boost sales. Affected by this, Tesla produced approximately 440800 electric vehicles globally in the first quarter, a year-on-year increase of 44.3%; Approximately 422900 new cars have been delivered, a year-on-year increase of 36%, and both production and sales have broken their single quarterly record. However, it is worth noting that Tesla's delivery data for the first quarter only increased by 4% compared to the fourth quarter of last year, indicating that the "gain effect" generated by its frequent price cuts is gradually weakening. Some Wall Street analysts also expressed concerns about signs of a slowdown in Tesla's delivery growth rate, and believe that after the "price reduction to protect the market" strategy, its long-term profitability will be irreversibly damaged.

　　As expected, Tesla has yet to find a new balance between ensuring market share and bike profits after a quarter of fierce competition based on price reduction strategies. On April 20th, Tesla announced its first quarter financial report for 2023. Data shows that its revenue in the first quarter increased by 24% year-on-year to $23.329 billion, which is basically in line with market expectations. However, the other evaluation indicators in the financial report are not optimistic. Among them, the operating profit margin in the first quarter was only 11.4%, lower than the 16% in the previous quarter and 19.2% in the same period last year. The gross profit margin of the automotive business, adjusted EBITDA, and net profit attributable to common shareholders under accounting standards (GAAP) also fell short of expectations. At the same time, Tesla's Free cash flow dropped by 80% to $441 million, the lowest level in nearly two years. Nevertheless, Tesla is still trying to downplay concerns about its recent price cuts, stating in a statement to shareholders that "operating profit margins will remain among the highest in the industry".

　　Indeed, taking the Model 3 model as an example, since its launch, Tesla has reduced its production costs by 30% through process improvements and economies of scale. Nowadays, with the continuous decline in battery raw material costs, it is foreseeable that Tesla will still maintain a relatively high profit margin for a certain period of time. On the day before the financial report was released, Musk stated in a conference call that in order to gain an advantage in the competition, Tesla will continue to implement a price reduction strategy to stimulate its product sales, even if it further lowers profit margins. "The short-term price reduction strategy will help Tesla's profitability in autonomous driving, supercharging, and other services.

　　In fact, Musk is placing high hopes on Tesla's business development beyond electric vehicles. According to financial report data, Tesla's total net profit from other businesses in the first quarter was $1.1 billion, with energy revenue soaring to $1.53 billion, a year-on-year increase of 148%. Therefore, there are also views that Tesla will accelerate the development of other businesses such as energy storage and FSD while seeking to ensure a relatively stable market volume, in order to make these businesses a profit support point in its "comprehensive shift to sustainable energy" goal process as soon as possible.

　　It is reported that in the first quarter of this year, Tesla's energy storage business installed capacity increased by 360% year-on-year, reaching a scale of 3.9 gigawatt hours. On the production side, in addition to continuing to increase the production capacity of the Las Roche Energy Storage Super Factory in California, the Tesla Shanghai Energy Storage Super Factory project has also been signed and approved on April 9th. The initial plan is to produce up to 10000 ultra large commercial energy storage batteries (Megapacks) annually, with a storage capacity of nearly 40 gigawatts per hour. On the other hand, with the pilot opening of Tesla charging network in Chinese Mainland, it will not only improve the utilization rate of stock assets and increase revenue sources, but also attract more potential users for Tesla. In addition, in terms of FSD business, as of the end of the first quarter of this year, the total driving range of Tesla's FSD test version system has reached 240 million kilometers. After updating its vehicle software to v11.3.2 version, it has also completed logical adjustments and improvements to the decision-making of passing through intersections or stopping at yellow light signals, and the behavior of continuing straight on turning lanes.

　　However, although Hongtu's vision is good, from the perspectives of production, research and development, and operations, it still takes time for Tesla to achieve significant revenue in these directions. In contrast, how to reduce the impact of compressed profit margins on itself in a fiercely competitive market is the focus of its current adjustment efforts.

　　Zero sum game of price reduction and insurance

　　When a high-profile competitor officially announces "exchange price for volume", other competitors often have to "see the bidding" until they find a new price ecological niche for their products in the melee. However, as the trend of price reduction and promotion spreads from the new energy vehicle industry to the fuel vehicle industry, most participating brands and models that follow suit have not benefited from it, except for the immediate effect of the Dongfeng series price reduction.

　　As a leading brand in this round of price reduction and promotion, Dongfeng Citroen's sales performance has attracted much attention. According to Zhai Meimei, Deputy General Manager of Marketing for Dongfeng Citroen Brand, in March, both C6 and C3-XR models of Dongfeng Citroen were basically sold out. "Among them, the insurance coverage of Citroen C6 models was 4086, an increase of 3143% compared to the previous month. The insurance coverage of Citroen C3-XR models exceeded 8400, a significant increase." Other Dongfeng brands also benefited greatly. According to the official website of Wuhan Economic and Technological Development Zone, Dongfeng Fengshen's sales reached 11435 vehicles in March, an increase of 8% year-on-year and 108% month on month; The delivery volume of Lantu brand in March was 3027 vehicles, an increase of 116% year-on-year and 173% month on month.

　　However, from the overall sales performance of the car market, the "limited time promotion" of various brands in the first quarter did not achieve the short-term sales boost goal, and passenger car sales decreased by 7.3% compared to the same period last year, which to some extent exacerbated the market wait-and-see atmosphere. In response, Chen Shihua, Deputy Secretary General of the China Association of Automobile Manufacturers, pointed out that "in the short term, subsidies for government enterprise cooperation are an effective way to stimulate consumption, and a moderate reduction in product prices is conducive to stimulating consumer demand. However, some signs indicate that irrational promotions will increase consumer wait-and-see sentiment, thereby affecting consumer confidence, and are not worth advocating." He also said that automobile companies should focus on the long term and focus on product technology Put more effort into quality, service, brand power, and other aspects, and strive for high-quality development. Anjani Trivedi, an analyst at Bloomberg, believes that "price cuts and incentive measures will increase costs and erode the already meager profit margins of car companies. These patch measures to address market structural issues clearly cannot last for too long

　　As a result, in the face of sales risks and consumers' mentality of "holding coins for reduction", some car companies choose to go in the opposite direction and urgently introduce "price protection policies". Ideal Automobile is the first to introduce a price guarantee policy, promising that users who purchase from March 11 to March 31, 2023 will voluntarily refund the price difference within 90 days from the purchase date if there is a reduction in the official selling price of the purchased model. Subsequently, Nezha, Tengshi, Zero Run, and others successively announced similar pricing plans. Although NIO Motors and others have not introduced a price guarantee policy, they have also made a clear commitment not to reduce prices.

　　From a practical perspective, this move also reflects the helplessness of new forces in car manufacturing and new brands. The vast majority of new energy vehicle brands that implement "price protection" are currently in a state of continuous loss among domestic new energy manufacturers, with only BYD making profits. Taking the new force "Weixiaoli" as an example, annual report data from various companies shows that Weilai Automobile suffered a loss of 14.437 billion yuan in 2022, with a year-on-year increase of 259.4%; Xiaopeng's net loss for the entire year of 2022 reached 9.14 billion yuan, an increase of 88% compared to the loss in 2021; Ideal Automobile had a net loss of 2.012 billion yuan, an increase of 528% compared to 2021.

　　This also explains why the brands and models participating in price reduction promotions are mostly in the traditional fuel industry, while facing market threats caused by significant price reductions mainly for fuel vehicles, manufacturers in the new energy industry refuse to follow up. After all, for most new energy manufacturers, profit pressure is still high above their heads. Therefore, it is necessary to maintain their own interests and use price assurance to stabilize consumer price perception, while also dispelling the "currency holding and wait-and-see" sentiment and guiding continuous car purchases at this stage. However, it should still be noted that whether it is price reduction or price protection, as manufacturers such as Tesla continue to attack and adjust their product design and manufacturing processes to achieve cost reduction and efficiency increase, the wave of price reduction has also made the tolerance space for domestic and foreign car companies more limited.

　　The sequelae of 'exchanging price for quantity' continue

　　The direct consequence of the combination of "price reduction" and "price preservation" measures in the market is the chaotic impression of brand preservation. Zheng Yun, global senior partner of Roland Berger and vice president of Greater China, and head of the automotive industry center, believes that consumers are still cautious about automobile consumption, "a sharp decline in price will have a huge impact on the surplus value of used cars and brand loyalty." Obviously, for some vulnerable brands and manufacturers, this round of price cut has given enough warning, especially in terms of profit margin and cost control, It will force it to fall into a completely passive state in price competition.

　　At the same time, on the automotive dealership side, although the "price reduction" strategy has indeed brought more customer traffic to offline dealerships, it has to some extent increased consumer attention to automotive products. There has also been a significant improvement in the access data to the car series page and car viewing and selection related functional pages on the online car purchasing platform. However, the order conversion rate is still limited, and the overall purchasing power of the car market has not been effectively released as expected. In addition, in the second-hand car market, due to the loss of "brand premium" for multiple joint venture brand models, some new and second-hand car prices have also experienced an inverted phenomenon.