The new energy sector is so quiet, why is the domestically produced Model 3 so popular?

With the delivery of the domestically produced Tesla Model 3, Tesla's sales in China have been rising. Jin Ye (pseudonym), a Tesla salesperson, is so busy that he can't even reply to WeChat messages. "If you place an order now, you will have to wait two or three months to pick up the car." At the Tesla Gigafactory in Lingang, Shanghai, the originally empty parking lot is gradually filled with Model 3. Engineer Lu Ming (pseudonym) is proud of the "speed of Chinese workers" and is satisfied that he was only 50 meters away from his "idol" Musk, but he has been working overtime for almost two months in a row.

Tesla, which costs less than 300,000 yuan after subsidies, has successfully stimulated the Chinese people's love for new energy vehicles. At a time when domestic new energy vehicles are generally "crying" due to declining subsidies and sluggish market, according to a research report by Industrial Securities, as Tesla's supply chain is localized in the future, its price still has room for 27%-34% reduction.

 
This is really not good news for domestic new energy vehicle companies.

The domestically produced Model 3, which is about 30% cheaper, has a range reduced from 590 kilometers to 445 kilometers, the four-wheel drive is changed to rear two-wheel drive, the acceleration time from 0 to 100 kilometers is 1 second slower, and the rear seats cannot be heated. Apart from this, other functions are almost the same.

"At present, the localization rate of parts for the domestically produced Model 3 is about 30%." Jin Ye told reporters, therefore, the price of less than 300,000 yuan is particularly attractive.

Mr. Shen is a car enthusiast and one of the first orderers of the domestically produced Model 3. He did the math for the reporter and found that the car comes with a free Shanghai license plate, low charging cost, no purchase tax, zero maintenance cost, and assisted driving function, making it very cost-effective.

The battery capacity of the domestic Model 3 is 60kwh. Based on a mileage of 300 kilometers, charging with a home charging pile after 22:00 costs 0.307 yuan/kWh, an average of 0.6 cents/kilometer; charging with a supercharger during the day costs 2 yuan/kWh, an average of 0.4 yuan/kilometer. Ms. Zhao, who has been driving the imported high-performance version of the Model 3 for nearly a year, used to spend nearly 500 yuan on fuel per week. Now she charges at most twice a week, each time for more than 100 yuan. This is the cost of using a supercharger, which is at least 50% cheaper than a fuel car.

However, after the price reduction, the domestically produced Model 3 has cancelled the service of free gift and installation of home charging piles. If car owners need to install them, they have to pay an additional 8,000 yuan to purchase them.

"We will lower the price first, and after we occupy 50-60% of the market share, we will not rule out price increases." Rong Hong (pseudonym) has worked in the automotive industry for many years and has been paying attention to Tesla. Regarding the current price, he believes that Tesla's profit is very low, and the current price may be Tesla's sales strategy. "From the perspective of battery life, the cost of the battery cell is 80,000 to 90,000 yuan, the cost of the electric drive is 30,000 to 40,000 yuan, and the material cost is not less than 200,000 yuan. Add to that the costs of sales and stores, and there is almost no profit."

However, a previous research report by Industrial Securities on Tesla's domestic supply chain showed that the production cost of the domestic Model 3 is 20%-28% lower than that of the US version. Industrial Securities estimates that if the domestic Model 3 pursues a similar gross profit margin as the US version, there is room for a 27%-34% price reduction, which corresponds to an absolute price reduction of 85,000-108,000 yuan.

Some people interpret this to mean that the price of domestically produced Teslas will drop to around 200,000 yuan. But from another perspective, based on the current price difference of about one-third between the domestic and imported versions, Tesla's room for price cuts may not be as large as imagined.

The mystery of the battery
: No matter how much profit the domestically produced Model 3 makes, its goal of 100% localization will inevitably lead to cost reductions.

The core cost of new energy vehicles is the "three-electric system", namely batteries, motors, and electronic controls, and batteries are the most valuable part. Previously, Tesla purchased Panasonic batteries, but there have been rumors that it will soon switch to LG 21700 batteries. At the same time, domestic battery manufacturer CATL has also reached a preliminary battery supply agreement with Tesla, which means that CATL will provide batteries for some domestic Model 3s in the near future. "If you place an order now, you will probably get a car with Panasonic batteries, but it will not be guaranteed if you place an order later." Jin Ye told reporters, and users cannot know what brand of batteries the domestic Model 3 they ordered uses.

At least for now, compared with the frequent reports of spontaneous combustion, low battery life, and expensive battery replacement of domestic new energy vehicles, Tesla's battery life and battery quality have a very good reputation. "The battery life loses about 1% in a year, and it only loses 10% after 10 years of driving, which is almost negligible. The battery life can still reach more than 400 kilometers." Jinye is very confident in its own products.

Cheng Ganjiang, director of the Battery Research Institute of Qingdian Smart Energy Research Institute, shared the same sentiment. "Tesla's battery quality and management are very good. The three-electric system is one of Tesla's core technologies." He told reporters, "The key is to solve the safety and density problems from the root. In the case that the existing batteries cannot be innovated and broken through in a short period of time, we need to carry out all-round protection, control and innovative design to solve the safety and temperature adaptation problems. Then, we can trace back to the root cause and solve the charging and battery replacement and battery life problems through innovations in vehicle models, battery packs and battery replacement modes."

"The Shanghai factory is currently the most important to Musk. The largest potential market and the lowest-cost production base are both in China." A new battery assembly plant was built on a vacant lot not far from the Gigafactory. Putting batteries together into a battery pack as big as a car chassis is the daily work process on the production line. Lu Ming may not care too much about what kind of battery will be used in the end. Anyway, he will have to work overtime in the foreseeable future. The Tesla battery production line where he works began to work overtime in December. "I only sleep 4 hours a day, and I can't hold on any longer." Even now, it is normal to get off work at 19:00, and working overtime overnight is also commonplace.

The driving force for the future
In sharp contrast to the "popularity" of Tesla is the sluggish Chinese new energy vehicle market. In 2019, new energy vehicle sales fell 4.0% year-on-year to 1.206 million units. Many people believe that the overall market environment changes and Tesla's entry into the market have brought unprecedented challenges to domestic new energy vehicles. To use a popular Internet phrase, "It's too difficult."

The "new four modernizations" of electrification, intelligence, networking, and sharing are giving birth to a "revolution on the road", and Tesla is leading this revolution.

If the "cold winter" sweeping the global auto market has only affected the current profits of various companies, the new changes brought about by the "new four modernizations" movement to the automotive industry are the driving force that determines the future direction of companies.

"Tesla's popularity is tantamount to putting China's new energy vehicle industry on fire." Pan Helin, executive director of the Digital Economy Research Institute of Central South University of Finance and Economics, told reporters frankly that the strong brand effect makes it difficult for other manufacturers to compete. Stimulated by Tesla, domestic new energy vehicle companies should think carefully about how to step up technological innovation as subsidies are gradually withdrawn, which will help the company's innovation and technological progress.

But that doesn't mean there are no opportunities.

"It is impossible for Tesla to take over the entire pure electric market. It is taking the mid-to-high-end route, as well as the segmented market." In Ronghong's view, Tesla has a greater impact on Internet car manufacturers, and many Internet car manufacturers have been benchmarking Tesla from the beginning.

However, the advantage of Internet car manufacturing companies is that the domestic industrial chain has been well integrated, while Tesla's supply chain needs to be integrated with the domestic supply chain for it to move towards China, which takes 1 to 2 years. At the same time, it also faces the challenges of technology optimization and cost reduction.