Tesla appears to be back to its price-cutting tactics, and the competition is taking notice. Following Tesla’s weekend price reductions in China, domestic electric vehicle manufacturer Li Auto, Inc. LI announced immediate price cuts on its entire EV lineup, excluding the new Li L6.
Li Auto Responds: Li Auto’s price cuts range from 2.8% to 5.7%, according to CnEVPost, with the L-series extended-range models experiencing a 20,000 yuan ($2,761) reduction and the Pro models seeing a slightly smaller 18,000 yuan decrease. The company is also extending the new pricing to existing orders that haven’t been delivered yet.
These adjustments bring the starting price of the Li L7 down to 301,800 yuan, while the base trims of Li L8 and Li L9 start at 321,800 yuan and 409,800 yuan respectively.
Li Auto’s first battery electric model, the Li Mega, received the biggest cut of 30,000 yuan ($4,141), bringing its starting price to 529,800 yuan. Additionally, customers who recently purchased these models will be offered cash refunds to reflect the price difference.
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Why It Matters: Li Auto’s price adjustments come directly on the heels of similar moves by Tesla. Late Saturday, Tesla reduced prices on its China-made Model 3 and Model Y, as well as imported Model S and X vehicles. These cuts ranged from 3.8% to 5.69%.
This return to aggressive pricing follows a period of slower sales growth for Tesla in the first quarter. However, similar tactics in late 2022 and throughout most of 2023 didn’t significantly boost Tesla’s volume. Instead, it triggered a price war in the industry, squeezing profit margins for all players.
The situation created a dilemma for competitors. Matching Tesla’s cuts meant sacrificing profits while holding prices steady meant risking losing market share. Unlike Tesla, with its established scale to absorb losses, most Chinese companies were just starting out. However, their efficient cost structures, manufacturing strengths, and government incentives allowed them to participate in the price war to a certain extent.
Market Reaction: Following Tesla’s global price cuts, Future Fund‘s Gary Black predicted minimal volume growth due to competition matching Tesla’s reductions, and his prediction seems to be unfolding.
Li Auto’s stock price on the Hong Kong Stock Exchange fell over 9% in late trading. Its U.S.-listed shares also closed down 9.60% at $26.38 on Friday.
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