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Prices for electric vehicles are still coming down. That can mean a lot of things for the industry, but few of them are good.
The website for China’s Zeekr, Geely’s premium EV brand, on Friday showed discounts for its Zeekr 001 crossover-sized vehicle that were roughly comparable to a
(ticker: TSLA) Model Y.
Prices for three versions of the Zeekr 001 are down about $5,000, on average, and base prices now range from about $40,000 to $52,000. Chinese Model Y base prices range from about $40,000 to $55,000. That’s down from about $43,000 to $60,000 at the start of the year.
cut prices around the globe in early January.
The impact Tesla has had on the industry is material. In the U.S., the average price for an EV in July was just more than $53,000, according to Cox Automotive, down about 18% year over year. That makes EVs just a little more expensive than the average new vehicle. The average transaction price in July was just more than $48,000, up 0.4% year over year.
Price cuts can signal slowing demand, increasing competition, or both.
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So far, Chinese EV demand has been solid in 2023. Through July, about 3 million battery-electric vehicles, or BEVs, have been sold, up about 23% year over year, according to Citi analyst Jeff Chung. New energy vehicles, which include BEVs and plug-in hybrids, accounted for almost 36% of all new car sales in July, up about two percentage points from June.
Through July, Zeekr sold about 55,000 BEVs. That’s only 2% of the market but it’s an increase of about 127% year over year. In the first half of 2023, Tesla sold roughly 294,000 BEVs in China, up about 50% from the year before.
Things appear to be OK, but all that data are backward-looking. New price cuts can signal new demand weakness. Chinese EV demand in the rest of 2023 is something for investors to watch.
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A scenario in which price cuts aren’t bad news for investors is if costs are coming down and lower prices boost demand. Tesla’s price cuts have been followed by two record quarters of deliveries. Cuts seemed to help demand.
Profit margins are another story though. Costs for some EV components, such as lithium, are lower but margins haven’t been maintained as prices have moved lower. Tesla’s operating profit margin in the second quarter came in at just under 10%, down from almost 15% a year ago.
Tesla stock was down 1.3% in premarket trading.
futures were down 0.3%.
futures fell 0.5%.
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It’s never a good idea to overreact to any one datapoint, but Zeekr price cuts are something investors will have to think about.
Coming into Friday trading, Tesla stock has risen about 100% this year, but have declined about 14% over the past 12 months.
Write to Al Root at allen.root@dowjones.com
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