The Chinese EV makers' shares were falling. At the lows of the morning, Nio, XPeng, and Li Auto lost between 12 and 18 percent. Nio was down by 7.1%, XPeng was down 14.1%, and Li was down 8.3%. The plunge was not news from these companies. It was thanks to the leader of electric vehicles.
In less than three months, the price of its vehicles in China has been slashed twice. As a result of that, investors are fleeing China-based EV stocks.
Chinese buyers can spend less to buy a Model 3 sedan or Model Y SUV from a Chinese manufacturer than they can from a US manufacturer. The Model 3 is 30% cheaper in China than it is in the United States.
The image is from Nio.
The prices are lower than what other companies charge. The Model 3 is Nio's closest competitor. The price of it is over $45,000. After the price drop of the Model Y, Li Auto's L7 SUV is less competitive than before.
The price increases that were put in place a year ago have been reversed. The increases helped cover rising costs. The Chinese companies are in a bind because of the move byTesla.
Nio, XPeng, and Li don't have scale or profitability. It will still be a very profitable company even if it takes a hit on its profit margins. The Chinese EV makers are trying to achieve profitability, but won't be able to cut pricing to keep their market share.
It is possible that investors will want to be out of these names before the losses get worse. These companies have been growing their sales and offering new models. It is possible that the market will not just switch toTesla based on price. The growth of the EV market will be the most important factor.
If there is a recession in China, these stocks will fall. Most industry watchers think that the largest auto market in the world will continue to go electric, which will help EV makers.
Howard Smith has positions in three different companies. Nio andTesla are recommended by The Fool. There's a disclosure policy at the Motley Fool.
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