China-made Model Y goes on sale at a very competitive price, triggering a high level of investor interest in China.

On January 1, Tesla announced that the China-made Model Y went on sale. According to the pricing announced on Tesla's website, the Long Range and Performance versions start at RMB 339,900 and RMB 369,900 respectively, a price reduction of approximately RMB 148,100 and RMB 165,100 compared to the previous imported version.

Nio's SUV models, the EC6 and ES6, start at RMB 368,000 and RMB 358,000 respectively, and are in direct competition with the Model Y.

What do Chinese analysts think about the Model Y price cut? Here are the key insights from nine teams.

The China-made Model Y is price-competitive, but the new energy vehicle market is not a zero-sum game.

The Model Y is more competitive than luxury brand competitors Mercedes-Benz GLC, BMW X3, and Audi Q5L. Considering that the potential customer base of luxury mid-range SUVs is partly from incremental and replacement demand, and is more receptive to new energy vehicles than first-time buyers, we expect the Model Y to have a certain crowding-out effect on traditional luxury vehicles.

For China's new car makers, Tesla is an enemy, a master and a friend, and they each have their own competitive advantages, not a simple zero-sum game.

We believe that Nio's business philosophy is not to pursue price bargains, but to acquire customers with the already established luxury brand positioning and service system that surpasses its peers.

We believe that Li ONE, as a 6-seat/7-seat midsize SUV, brings its size and price advantages into full play, and the extended-range technology determines that Li Auto has a larger potential customer base than Tesla.

The market is concerned that Tesla's models continue to drop in price, putting a squeeze on other brands. We believe that Tesla is more of a catalyst for the new energy vehicle industry.

1) China's electric vehicle penetration rate is less than 6%, and the industry is in a high growth phase with huge market space.

2) Tesla's declining prices drive the popularity of electric smart cars, promote consumer acceptance of electric vehicles and accelerate industrial change.

(3) Tesla will lead the industry in electric smart features, pushing China's smart electric vehicle supply chain capabilities to become more mature, and other car companies will also benefit, making it easier to create "good products" at "good prices".

The Model Y and Model 3 have a significantly smaller price differential than traditional cars, changing the pricing rules of the industry and potentially impacting traditional car companies.

Compared with the BMW X3, Mercedes-Benz GLC and Audi Q5 in the same class of luxury car companies, the Model Y has a clear competitive advantage in terms of price and intelligent features.

The price difference between Model Y and Model 3 is much smaller than the price difference between luxury gasoline SUVs and sedans, and it is expected that China-made Model Y will gain more enthusiasm from luxury car consumers.

Combined with the advantage of new energy license plates in big cities, Model Y is expected to bring more pressure to BMW, Mercedes-Benz and Audi.

In the future, with the introduction of the standard range version of the Model Y and Tesla's "price reduction strategy", BMW, Mercedes-Benz and Audi compact SUVs are expected to be under pressure as well.

Behind Tesla's pricing is the change of business model, and traditional car companies need to accelerate the transformation to respond.

Benefiting from the gradual increase in the proportion of China-made parts, Model Y pricing has a big advantage compared to the same level of electric and fuel cars, and is expected to become the new popular model.

We believe that the decreasing price of new Tesla vehicles is one of the typical manifestations of the new business model of automobiles.

In stark contrast to the hardware price reduction, Tesla continues to increase the FSD selling price, OTA opens paid upgrades and in-car APP starts to charge for updates.

The company's lower hardware price is a way to quickly expand its own user base and bring a greater profit base for the subsequent ongoing software fees.

We believe that as automotive intelligence advances deeper, hardware profits may gradually give way to service fees for owners during their vehicle ownership cycle, which will force traditional vehicle companies to resolve to accelerate their transformation to intelligence.

The first Model Y was delivered in the U.S. on March 13, 2020. As of December, the Model Y, which is still in the capacity climbing stage, has delivered about 84,000 units in total.

Comparing this figure with SUVs of luxury brands, it already exceeds the sales of Mercedes-Benz GLC (72,439 units) BMW X3 (70,110 units) and Audi Q5 (67,516 units) for the whole year of 2019 in the US.

Tesla sales in the Chinese market are mainly concentrated in first-tier cities, accounting for a combined 62%.

With the existence of travel restrictions on gasoline vehicles and the stimulus of intelligent electric vehicles, Model Y will be another strong attack by Tesla on traditional luxury brands, with the main goal of taking away more consumers from the SUV market of BMW, Mercedes-Benz and Audi.

The current Chinese pure electric luxury SUV market is still in the "insufficient supply" stage, and Model Y sales in China are expected to exceed 300,000 units/year in the long term.

The current market space for SUVs in China is nearly 1.6 million units in the RMB 250,000-500,000 range, accounting for 50% of passenger car sales in the RMB 250,000-500,000 range.

China's pure electric luxury SUV market is still in the stage of "inadequate supply", and the share of pure electric SUV sales in the price range of 250,000-500,000 RMB is only 30%, mainly occupied by Nio ES6, Nio ES8 and GAC Trumpchi AION LX.

The launch of Model Y is expected to fully activate the luxury pure electric SUV market in China. In the long term, we expect Model Y sales in China to exceed 300,000 units/year.

Compared with cars, SUVs have the advantages of large space and good passability, which are more favored by Chinese consumers.

From the past decade, 2010-2019 China's car and SUV market compound growth rate of 0.9%, 24.3%, respectively, the current SUV market size has been similar to the car.

Model Y has a strong advantage in pricing and comprehensive cost performance compared to comparable EV competitors such as Nio ES6 and BYD Han, and still has a strong price advantage compared to comparable fuel vehicles, such as BMW, Mercedes-Benz and Audi SUVs of the same class.

Combined with Tesla's reputation accumulated by other models such as Model 3, Model Y's mid-size luxury SUV positioning is expected to make it a popular model. We expect its sales to reach more than 250,000 units in 2021.

The Model Y price cut to the RMB 300,000 - RMB 400,000 range will create direct competition with luxury car pure electric SUVs such as BMW iX3, Audi e-tron, Mercedes-Benz EQC and Chinese brand premium models Nio ES6, GAC Aion LX, BYD Tang, ROEWE Marvel X.

This will force foreign and local brand car companies to further reduce costs and improve efficiency, and accelerate the penetration of electric vehicles.

From the perspective of the industry chain, the growth of Model Y sales is expected to further enhance the demand of the industry chain. At the same time, the Model Y supply chain is expected to introduce a large number of domestic suppliers to further secure supply and reduce costs.

China-made Model Y is expected to become a phenomenal SUV product after this price cut, targeting a market space of 1.12 million units/year.

As it accelerates the adoption of China-made parts, especially the introduction of domestic brands of power cells and the launch of the standard range version, if the Model Y is subsequently lowered to below RMB 277,000 (after subsidies), it will aim for 1.6 million units/year market space.

If the price of Model Y is reduced to around RMB 250,000 (after subsidy) in the future, it will target a market space of more than 2 million units/year.

At the same time, Model Y forms an overwhelming advantage over fuel cars in the same class in terms of specifications, which will hit the luxury fuel SUV brands in terms of price, and hit civilian fuel SUVs in the same price range in terms of brand power and performance parameters in a descending manner.