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Tesla rivals rev up growth in China’s EV sector

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China’s electric vehicle market posted unexpected growth in 2020 despite a global health crisis and subsequent economic recession, and the industry is anticipating the momentum to accelerate this year, powered by true demand rather than government incentives.

Sales of new energy vehicles (NEVs), which include all-electrics, plug-in hybrids, and fuel cell vehicles, increased 10.9% annually to nearly 1.37 million in 2020, the China Association of Automobile Manufacturers (CAAM) said on Wednesday, after sales fell 4% the year before. The industry group forecasted sales would accelerate to 40% year on year to 1.8 million in 2021; critically, Beijing’s subsidy program will no longer play a key role in driving demand.

Analysts have also weighed in positively on the growth prospects of China’s EV sector. The world’s largest EV market will likely maintain its upward momentum this year, with consumer confidence in EVs on the rise and with it, a willingness to pay for the technology, Paul Gong of UBS said Thursday during an online conference. The Swiss investment bank predicted China’s EV sales would rebound to more than 1.56 million units this year.

Tesla leads the way with price cuts

Electric cars are making their way into the mainstream. Tesla recently kicked off production of its popular Model Y electric crossovers in its Shanghai facilities, after churning out Model 3 sedans for a year. The company has managed back-to-back price cuts since it launched its entry-level model, which experts believed not only makes EVs from the US giant an economically viable choice but also boosts overall consumer awareness and excitement about EVs.

That said, analysts warned that the surprise launch of the China-made Model Y, priced 30% lower than its imported version, could be a short-term hit for NIO and Xpeng Motors, Tesla’s most prominent Chinese challengers. The American carmaker immediately sold out of its Model Y in China and has guided delivery windows in the second quarter for new orders. This followed Chinese media reports that a Tesla showroom in Shanghai sells nearly 200 vehicles per day after releasing its new pricing.  

Some industry watchers believe Chinese EV upstarts should follow suit and slash their prices in order to maintain momentum. In response, NIO and Xpeng bosses voiced confidence about their sales and no indication that they would discount pricing. NIO has gained traction especially among China’s growing middle-to-upper-class families, and delivered 43,728 SUVs last year. Xpeng, in a head-to-head competition against Tesla with its sedan, recorded deliveries of 27,041 vehicles in 2020.

The big race

Chinese carmakers are competing for the same mainstream, luxury customers as Tesla. They are not undercutting prices but rather focusing on value-added offerings—unusual for the Chinese auto industry. From the old guard to young startups, all the major players are racing to use the latest self-driving tech in their EV lineups as vehicle technology undergoes the most significant changes in a generation.

NIO, now emerging as a top contender, last week unveiled a top-of-the-line hardware suite capable of providing high-level autonomous driving functionalities for the ET7, its first mass-production sedan. Prior to that, Xpeng had announced a partnership with Livox, a Lidar maker backed by Chinese dronemaker DJI, in order to equip its 2021 production model with the technology—expensive for mass market use.  

Traditional carmakers are gearing up to rapidly follow Tesla’s lead. SAIC, Volkswagen’s manufacturing partner, and BMW’s Chinese ally, Great Wall Motors, announced plans this month to offer self-driving capabilities in 2021, with a hardware stack integrating multiple sensors and high-resolution map data to navigate road safety.

And yet, few have revealed detailed timelines for when their vehicles will be able to navigate driving complexities such as urban Chinese traffic. Tesla meanwhile announced that its fully self-driving system—a beta version of which is being tested by selected users—can handle both highway and urban driving duties. Tesla has so far maintained a significant lead when it comes to software and self-driving, using its vision-based approach which relies on lower-cost cameras and artificial intelligence for navigation and planning.

“NIO’s long-term strategy for self-driving is to be open to and able to utilize the latest technologies and push the industry forward with our strategic partners. The competition will result in several industry alliances and we will make sure to stay on the winner’s side,” (our translation) William Li, NIO CEO told reporters during an interview last week.

As a tipping point for mainstream EV adoption approaches, NIO and its peers are prying open a window of opportunity to beat Tesla. But time is limited, and every company is sprinting to catch up.