Year of the Tiger: Tesla's lead in China's EV market is whittled away by NIO, Xpeng, Li Auto and other home-grown brands

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Year of the Tiger, Xpeng Motors, 2021 deliveries, Shanghai-based NIO, Li Auto, the opening they need, three of every five new cars, a shortfall of 1 million cars, He Xiaopeng said recently, William Li said, pared-down USB ports

Tesla’s dominance in the world’s largest electric car market may come increasingly under pressure in the Year of the Tiger, as China’s home-grown brands develop new models to pick up the slack left by Elon Musk’s company.

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To get there, NIO, Xpeng Motors and Li Auto – the three most aggressive local EV start-ups – will have to spend heavily to assemble and launch smart, all-electric vehicles amid the lingering shortage of semiconductor chips that may leave a 20 per cent shortfall in this year’s demand for so-called new energy vehicles (NEVs).

“They need to overcome some challenges to lure customers away from [Tesla’s] Model 3 and Model Y,” said Gao Shen, an independent analyst in Shanghai. “First, they should secure enough chips and components to ensure the smooth production of new cars. Second, they must spend a large sum of money to promote the new models, which can affect their earnings.”

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They have a lot of catching up to do, as their combined sales of 280,075 electric cars in China still left them with a 13 per cent gap with Tesla, whose 2021 deliveries more than doubled to 321,000 units. Shanghai-based NIO’s 2021 deliveries rose 109 per cent to 91,429 units, while Guangzhou-based Xpeng tripled its sales to 98,155 vehicles and Beijing’s Li Auto reported a 177.4-per cent increase to 90.491 EVs.

“The gap is not expected to narrow in 2022,” said Peter Chen, an engineer with the auto-parts company ZF TRW in Shanghai. “It is still too early to jump to the conclusion that they will be China’s own Tesla, [even if] the trio have proved that they are major competitors in the smart EV segment.”

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Tesla will not launch any new models in 2022, as it focuses its resources to cope with and overcome supply chain constraints, the carmaker’s chief executive Elon Musk said on January 27, handing his customers and investors a shock that wiped out US$100 billion in market value in a single day.

That gives the trio of New York-listed Chinese EV makers the opening they need to catch up. NIO said it would launch three models in 2022, while Xpeng and Li Auto each plans to begin selling a new sports-utility vehicle (SUV) model.

Still, any new model will come at the expense of the bottom line, as the unprofitable carmakers must spend heavily on marketing dollars to promote and prove that they are up to the match against the market bellwether.

In the third quarter of 2021, NIO posted a loss of 835 million yuan (US$131 million), while Xpeng lost 1.6 billion yuan and Li Auto was in the red to the tune of 21.5 million yuan. Tesla’s net profit more than quadrupled to US$1.62 billion in the same three months.

“It is more important for them to pursue a bigger market share (in China) this year, rather than chasing profitability,” said Paul Gong, a UBS auto analyst. “After all, each of them has ample cash on hand” from their fundraising in the capital markets.

China’s EV market is also hyper competitive, with 200 certified assemblers battling in a market where three of every five new cars on Chinese roads are expected to be fully electrified by 2030, according to a UBS forecast. From BMW to Volkswagen, with Ford Motor and Toyota Motors in between, every global carmaker has several EV models waiting to launch in China, all competing with pure EV start-ups.

Most critically, China’s EV makers have to find their way around the global chip shortage, which can equip 4 million out of the 5 million electric cars needed this year in China. That leaves a shortfall of 1 million cars without the microprocessors that run everything from navigation and self-parking to on board entertainment systems, analysts said.

Xpeng’s co-founder and chief executive He Xiaopeng said recently that it would take half a year before the issue would be fully solved. NIO’s chief executive William Li said the shortage would only ease in the second half.

Even Tesla’s in-house designs and component productions could not shield it from supply chain disruptions. It shipped Model 3 and Model Y electric cars in China with pared-down USB ports that could only do half of the promised job, because of the chip shortage.

New-energy vehicle sales in China, which comprise of pure electric, plug-in hybrid and fuel-cell cars, hit 2.99 million in 2021, up 169 per cent on year.

Tesla’s Gigafactory 3 in Shanghai, its first assembly outside the US that started operation at the end of 2019, has already secured a strong order backlog with buyers having to wait until the end of first quarter for their Model 3 or Model Y vehicles to be delivered.

Annual production capacity of the only fully-owned carmaking plant by a foreign company in China has exceeded 450,000 units.

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