The rise of inexpensive Chinese electric vehicles (EVs) has put pressure on legacy automakers who have turned to suppliers, from battery materials makers to chipmakers, to squeeze out costs and develop affordable EVs quicker than planned. Until now, many established car brands have focused on developing high-end models with advanced features to attract the earliest EV adopters. But with prices for the latest offerings falling to a fraction of what early movers paid, many buyers are ready to wait for cheaper alternatives.
China’s EV makers have a distinct advantage over global competitors regarding price. They are also a bit more flexible in lowering their price tags, thanks to Beijing’s easing export restrictions and its generous subsidies for the industry. The result is that even the highest-end models are more than 20% less expensive than their global counterparts.
Despite that, the market remains a fiercely competitive one. During the summer, a spate of aggressive price cuts from various Chinese EV manufacturers spurred demand and fueled the industry’s overall growth. But the discounts could be short-lived, as the flurry of bargains has also raised concerns about profit margins and liquidity among investors.
Some of the most ambitious EV makers, including entrepreneur Elon Musk’s Tesla, have already begun to scale back on their lofty production goals. And others have stopped offering incentives like free battery-swapping services to boost sales. The strategy is risky because if a company fails to reach its production targets, it could lose out on new and existing sales.
The big question is whether traditional automakers can keep pace with the Chinese juggernauts, especially as they continue to face slowing car sales and slim profit margins. Investment bank UBS predicts that if the current growth rate continues, by 2023, the combined market share of two companies—Tesla and BYD—will double from 20% to 40%, while established automakers will wane from 30% to 17%.
While it’s still too soon to tell whether cheaper Chinese EVs will gain widespread adoption, their presence is helping to drive the development of next-generation technologies. UK startup Brill Power, for example, is working on battery management systems that will allow car batteries to be repurposed after their initial 10-to-15-year life in new applications, such as stationary energy storage and vehicle-to-grid (V2G) technology.
Regardless of the final result, the industry focuses on the bottom line. A recent study by consultancy Accenture found that 30% of surveyed sustainability-minded drivers were willing to pay 1%-5% more for a greener vehicle. And those premiums could rise even more as the sustainable EV sector grows into its segment of the automotive marketplace. Ultimately, a new generation of consumers drives the industry to prioritize affordability and efficiency. And the price tags for those models will reflect that priority, too.