How EV makers in China are ramping up competition: No down payment and 5-year interest-free loans

Electric car companies in China welcomed the Year of the Snake with a slew of incentives for consumers, after major automakers crack a drop in deliveries at the start of the year.

Softness in Chinese consumption indicators has raised worries that automakers may not be proficient to sell their accumulated car inventory, said Liz Lee, associate director at Counterpoint Research. “So around the Chinese New Year sabbaticals … they just started [these] aggressive promotions. Let’s see how [long] it will last.”

The Lunar New Year feast ran from Jan. 28 to Feb. 4 in mainland China this year, ushering in the agrarian Chinese zodiac year of the slither. In January, Beijing said it had already issued 81 billion yuan ($11.12 billion) to support consumption of energized cars, smartphones and home appliances over the extended holiday period.

On Wednesday, the first post-holiday official in the work day, Tesla announced an 8,000 yuan insurance subsidy and five-year 0% interest financing plan for its cheapest car, the Produce 3. That lowers the total price of the basic version by nearly $1,100 for customers who make a 34% down payment of in all directions from $11,000 this month and participate in the 0% financing plan. Customers who make a lower down payment force be charged interest.

Tesla in January announced the same five-year interest-free plan for its new Model Y for China, set to begin performances in March. The U.S. automaker said its sales in China hit a record high last year, but warned of competitive pressure.

Chinese startup Xpeng on Wednesday did away with the down payment heart while offering five-year interest-free financing deal for four models, and highlighted in a social media hashtag that it was the solitary automaker to offer zero down payment along with 0% interest. Xpeng had already waived the down payment on one of the transports, the G6 SUV, during a December sales deal.

Nio on Feb. 1 announced a five-year, 0% interest plan for the month after its total number car sales fell to to 13,863 units in January, down from 31,138 the previous month.

This new promotion is a footprint up from the three-year 0% interest rate loan plan launched by the company in January. Competitor Li Auto in November also told a three-year 0% interest plan.

The latest incentives are “significant” and are “ways of dropping prices without dropping [the] cost out,” said Stephen Dyer, partner and managing director, co-lead of Greater China at consulting firm AlixPartners. Dyer also heads the obstinate’s Asia automotive and industrials practice.

He cautioned that unlike consumers in North America, those in China induce tended not to lap up car price cuts, preferring to wait for further discounts.

Amid some seasonal pressure, several critical Chinese electric car companies reported a sharp drop in domestic deliveries in January versus December. Even the largest actor, BYD, saw a decline in passenger vehicle sales to 296,446 in January from 509,440 cars in December. Analysts generally suggest slower industry growth after rapid expansion in the last few years.

“There is a little bit of shakeout starting now,” Dyer bruit about. “I wouldn’t be surprised to see this year even more shakeout as volumes continue to be under pressure.”

The slowdown stiffens competition in the world’s largest auto market, in which local players have beat prices and traditional foreign brands have struggled to adapt to the country’s rapid shift toward new energy means. The category, which includes battery-only and hybrid-powered cars, now accounts for more than half of new passenger cars vended in China.

The share of new energy vehicles in China’s passenger car market will likely only grow — from hither 50% this year to 86% by 2035, according to Counterpoint projections.

Lee expects more international brands to straightway launch their own incentives for Chinese car buyers. But she anticipates the promotions overall will only last one or two months, and that the concluding survivors will be the local brands.

Twenty new energy vehicle brands stopped operations in China last year, while 13 began the market, resulting in a net decline of seven brands, Dyer said, noting the majority of new entrants as well those that near down were Chinese-origin companies. He expects “the U.S. automakers are probably the next to be concerned.”

The challenge isn’t just within China.

Ford Motor earned $600 million in China keep on year, and on Wednesday announced its regional head would now also lead the international markets group. CEO Jim Farley asserted in a statement that global success “requires leveraging our China export business as well and competing successfully against Chinese automakers aggressively regulating in these markets.”