Demand for electric vehicles (EVs) in China remains strong, driven by government subsidies and fierce competition that have led to lower vehicle prices. Chinese EV manufacturers are ramping up discounts and incentives. Recently, ZEEKR Intelligent Technology (ZK, Financial) reported a 106% year-over-year increase in November deliveries, reaching 27,011 vehicles. The company, focused on premium EVs, launched the ZEEKR MIX, a luxury van, with shipments starting on October 23, 2024.
Other Chinese EV companies are also introducing new models. In May, NIO (NIO, Financial) launched a brand called ONVO to compete with Tesla (TSLA, Financial). The ONVO L60, a mid-size SUV, achieved 5,082 deliveries in November, contributing to NIO's total of 20,575 deliveries, a 29% year-over-year increase. Li Auto (LI, Financial) launched its L6 SUV on April 18, 2024, and it has surpassed 160,000 cumulative deliveries, the highest for any Chinese EV priced above RMB 200,000.
The competitive landscape is intensifying as more EVs enter the market. Tesla (TSLA, Financial) and BYD Company (BYDDF, Financial) are aggressively promoting their vehicles to boost year-end sales. Tesla offers 0% financing on five-year loans and a 10,000-yuan discount on the Model Y, while BYDDF provides discounts up to 3,000 yuan on select models.
Companies like ZEEKR (ZK, Financial), NIO (NIO, Financial), Li Auto (LI, Financial), and XPeng (XPEV, Financial) are expected to introduce their own incentives, further escalating the price war. This competition is squeezing margins and profits. ZEEKR's vehicle margin fell to 15.7% in 3Q24 from 18.1% a year earlier, and Li Auto's margin decreased to 20.9% from 21.2% in 3Q23. On the other hand, XPeng's vehicle margin improved to 8.6% in 3Q24 from -6.1% in 2023, and its gross margin hit a record high of 15.3%, thanks to technology-driven cost savings and higher volume growth. XPeng's non-GAAP net loss narrowed to RMB 1.53 billion from RMB 2.79 billion year-over-year.
The rapid adoption of EVs in China aligns with the government's goal for EVs to represent 45% of new car sales by 2027. However, intense competition and challenging economic conditions are driving a price war that could hinder significant gains for Chinese EV stocks in 2025.
