China's auto industry is facing cyclical swings in the transition to electrification that can't be weathered by price wars and require automakers to stick to brand values, an NIO executive said.
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An NIO (NYSE: NIO) executive said the company won't get involved in a price war, which has come into focus with the recent sharp price cuts by a large number of internal combustion engine (ICE) automakers.
NIO will not engage in a price war and will not respond to the current market volatility with price cuts, said Pu Yang, the company's assistant vice president of sales operations, at a media briefing today.
NIO believes that the current wave of price cuts is a cyclical fluctuation in the transition from ICE vehicles to smart electric vehicles (EVs), with the main players being ICE models from joint venture brands with limited competitiveness, Pu said, according to minutes shared by several automotive bloggers.
The cyclical fluctuations brought about by this technological revolution can't be crossed by price wars and require car companies to stick to their brand values, he said.
NIO will always ensure the user experience and cope with this cycle by efforts including continuous investment in infrastructure, keeping prices and configurations stable, and full-stack in-house research and development, he said.
More and more car companies are joining the price war, leading to an increased wait-and-see sentiment among consumers to avoid seeing price cuts soon after purchasing a car.
NIO's local counterpart, Li Auto (NASDAQ: LI), has introduced a consumer price-protection benefit that will refund the difference if the price drops within 90 days of their purchase.
Pu said he saw Li Auto's move and that NIO had considered whether to issue a similar policy, but for the company, it had previously made it clear that prices would not go down.
Not only is NIO not dropping prices for 90 days, but prices won't change for a longer period of time, he said.
He believes the current plunge in ICE vehicle prices in China will be a landmark event and potentially a watershed moment for the auto industry as a whole.
Many of the products that have seen significant price cuts are at the end of their life cycle, Pu said, adding that he doesn't think that will be the norm.
He believes that the large number of models that have seen significant price cuts are appearing quickly, and that these moves will disappear quickly, and that this will be some sort of catalyst for the development of the new energy vehicle (NEV) market.
Pu is optimistic about the whole-year performance of the passenger car market in China, and believes that sales will increase compared to last year.
He mentioned that NIO has seen an increase in the number of visitors to its stores and test drives in recent times, and is confident of growth given the new products the company will have available and the upcoming Shanghai auto show.
The NIO brand will not make prices lower by introducing single-motor models or models without LiDARs, Pu said, reiterating remarks made by William Li, the company's founder, chairman and CEO, during an earnings call earlier this month.
Lower configurations and lower prices are not how NIO wins. The company started from the beginning with a desire to give users a highly configurable, high-quality-of-service experience, he said.
Pu said he suggested to the company's management at the time of the ET5's launch that it could lower the barrier to purchase by eliminating the free battery swap benefit, but that was voted by Li.
The ET5 is a good value when compared to competitors in the same price range as it, especially in terms of intelligence and performance, he said.
NIO believes that improving service quality will be an effective means of dealing with the competition, including adding 1,000 new battery swap stations this year, he said.
The penetration rate of NEVs in China will be higher this year, and the total market segment of high-end EVs will be larger, so NIO is expected to achieve better growth, Pu said.
New products will be an important card for NIO this year, as the company will have more core products on the market this year and delivery is expected to be smoother, he said.
As for the lower-priced EV market, NIO will cover it through sub-brands, including one codenamed ALPS, he said.
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Much of this is likely due to a low base caused by last year's Chinese New Year holiday.