'Limited lineup a problem for Tesla'

Slashed prices have given Tesla's Chinese sales a boost, but analysts and even fans, are warning the United States' automaker needs to raise its long game to avoid choking on the dust of fast-moving rivals in the world's biggest electric vehicle market.

Tesla offers two models in China: the Model 3 sedan and the Model Y crossover. This keep-it-simple approach has driven scale and lowered costs. After the latest price cuts, the Model 3 starts at 229,900 yuan ($33,500) and the Model Y at 261,900 yuan.

Tesla's January price cuts drove deliveries of its China-made vehicles up 18 percent from December. The company's thick profit margins have put it in a position to wage a price war on competitors in China and beyond, analysts said.

But they said Tesla had lagged Chinese competitors in introducing new models, improving navigation systems, adding luxury interior touches or white-glove customer service to serve the developing range of consumer preferences for EVs.

"Tesla's facing a serious problem of a very limited product mix," said Cui Dongshu, secretary-general of the China Passenger Car Association. "Its slowness to respond to Chinese consumers' preferences has led to a very passive positioning for Tesla to rely on few means, such as price cuts, to stay competitive."

Even Tesla Chief Executive Elon Musk has conceded that China is where his company could face its toughest competition.

Tesla did not respond to a request for comment on its China business. Grace Tao, Tesla's vice-president in charge of external communications in China, said previously the price cuts in China reflected engineering innovation and answered the call to encourage economic development and consumption.

The China Association of Automobile Manufacturers expects sales of EVs and plug-in hybrids to surge by 35 percent in 2023 to 9 million vehicles — nearly a third of China's total new vehicle sales.

While Tesla has increased sales in China, its second-largest market, it has also lost share. From 15 percent in 2020, its share of the China EV market fell by a third to just 10 percent in 2022, according to data from the CPCA.

BYD, which overtook Tesla by global sales volume in 2022 and has a market value well over $100 billion, offers more than 60 different versions of pure electric and plug-in hybrid cars. Much smaller but ambitious peer Nio has gone from two models to six over the same period and plans to launch five more this year.

"The aging product line is a real problem for Tesla," said Yale Zhang, managing director at Shanghai-based consultancy Automotive Foresight. "Once BYD and other EV startups follow to lower prices, the effect of Tesla's price cuts could vanish in the blink of an eye."

Tesla has been considering a shift in its marketing in China, focusing more on energy efficiency and practical features and less on cutting-edge functionality, a person with knowledge of the matter said.

It has also been studying how its Chinese rivals, led by BYD, win over customers in showrooms, especially in smaller cities, the person said, who declined to be identified citing a lack of authorization to speak to the media.

For example, BYD ensures that bottles of drinking water offered to its showroom visitors are warm in winter in a nod to local preferences. Nio, meanwhile, invited customers to make dumplings at its showrooms to celebrate Spring Festival.

Qin Lihong, co-founder and president of Nio, said personal recommendations from existing customers factor in roughly 60 percent of its new sales, which hit 122,486 in 2022, up 33.86 percent year-on-year.

Reuters and China Daily