Chinese EV Price Cuts Aim to Cripple Tesla

Major electric vehicle (EV) companies in China just took a huge financial risk. The largest EV maker in the world’s largest EV market cut prices on its new models by as much as 34%. The price of its least expensive vehicle, the Seagull, will fall to $7,770. BYD’s major competitors—Geely, Li Auto, and Xpeng–matched the cuts. The Financial Times calls it an all-out price war.

Tesla Inc. (NASDAQ: TSLA) may have to match these cuts to keep its market share in place, which threatens its profit margins. China is Tesla’s second-largest market. The company’s margins are already under pressure. Operating income dropped 66% in the most recently reported quarter, and carbon credits also hit it.

Tesla is in a race, and a drop in auto sales makes winning that race more critical. According to the European Automobile Manufacturers’ Association, Tesla’s unit sales dropped 49% to 7,261 in Europe during April. Overall, EV sales in that market rose 34.1% during the same month.

Investors believe that Tesla’s valuation is based more on self-driving success than unit sales. They reason that if it is the first to market with a truly autonomous vehicle, a sharp increase in car sales will follow.

The company already has a service called Tesla’s Full Self-Driving (Supervised) mode. It is autonomous in many situations but warns drivers to keep their eyes on the road.

Tesla’s first true self-driving vehicle, a robotaxi, will launch in Austin in late June. According to CEO Elon Musk, it will be a breakthrough. These cars will essentially drive themselves. Last year, Nvidia CEO Jensen Huang said Tesla had a lead in the auto AI sector. The Austin test may prove if he is right. But it already has challengers. The most visible is Google’s Waymo.

Tesla may grab the lead in AI-controlled cars. In the meantime, Chinese EV companies sell cars outside China, which means they compete with Tesla in some countries. For the time being, that does not include the United States because of 100% tariffs on Chinese EVs.

BYD has started to expand into several nations in Asia, as well as Brazil and parts of Europe. It also plans to build a plant in Hungary.

BYD and some other Chinese companies claim to have self-driving features and can match Tesla’s service. If so, Tesla faces competitors who are willing to cut prices to gain market share and who have also moved into self-driving.

Prediction: 1 Electric Vehicle Stock Poised to Overtake Tesla by 2030

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