Tesla Shares Drop Following China Price Cuts. What Does It Mean For NIO, XPeng And Li Auto?

Zinger Key Points
  • Bank of America says Chinese EV makers may be forced to respond to Tesla's price cuts.
  • Chinese stocks tanked on Monday following a political power grab by Chinese leader Xi Jinping.

Tesla Inc TSLA shares dropped another 4.6% on Monday morning after the electric vehicle company reduced prices on its standard Model 3 and Model Y vehicle models in China by 4.7% and 8.9%, respectively.

What Happened? Shares of Tesla's domestic Chinese competitors, including Nio Inc - ADR NIO, Li Auto Inc LI and Xpeng Inc - ADR XPEV, all plummeted more than 10% on Monday as well, and Bank of America analyst Ming Hsun Lee said Tesla's price cuts could have meaningful implications for Tesla's competitors.

Related Link: Why Chinese, Hong Kong Stocks Are Tanking As Xi Jinping Consolidates Power

Tesla has reduced the price of its Model 3 sedan in China from 279,900 yuan to 265,900 yuan, or about $36,615. It has also cut the price of the Model Y from 316,900 yuan to 288,900 yuan, or about $39,777.

The price cuts come after Tesla missed analyst expectations for third-quarter revenue and deliveries. Tesla does not break down its China auto sales, but China is a large growth source for the company.

Why It's Important: Lee said Nio's ES6 and EC6 models and XPeng's G9 model are the closest SUV competitors to Tesla's Model Y. However, Lee said none of those three models compete on price, specs or market segmentation, so Tesla's price cut will likely not prompt a response. However, Lee said XPeng's P7, Boyd Group Services Inc BYDGF's Han and Seal, and Leapmotor's C01 each compete directly with the Model 3 in China.

"We don’t exclude the possibility of Xpeng, BYD or Leapmotor adjusting their pricing strategies if TSLA’s price cut impacts Chinese peers’ volume sales in a significant manner," Lee said.

Related Link: Xi Jinping Effect: Why Alibaba, Nio And Other Chinese Stocks Are Nosediving Today

A very difficult 2022 went from bad to worse for U.S.-listed Chinese automakers on Monday. While the Tesla price cut could eat into margins, the big news for all Chinese stocks came from President Xi Jinping over the weekend. As he consolidated his control over China's Communist Party by appointing loyalists to the party's most powerful positions and shunning convention by maintaining his presidency for a third term.

Given Xi's aggressive crackdown on large Chinese tech companies in recent years, investors see his latest power grab as bad news for Chinese innovation and economic growth.

The iShares China Large-Cap ETF FXI plummeted 10.2% on Monday, dragging down all the major Chinese automakers as well.

Benzinga's Take: On any other day, the Tesla price cuts would be big news for Chinese EV stock investors. However, now that Xi has seemingly consolidated his control over China's Communist Party, these Chinese EV stocks may trade more on politics in the near term than on vehicle sales or margins.

Photo: Courtesy of Dave R on flickr

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