Tesla could roll out 'further price cuts': Strategist

Shares of Tesla (TSLA) are dipping on Monday as the company has slashed prices in China once again. The company has also made price cuts in Germany and the US as it faces declining sales and growing competition.

Stephen Dyer, Head of the Asia Automotive and Industrials Unit at AlixPartners, joins The Morning Brief to give insight into the Chinese and American EV markets and how Tesla fares among both.

Dyer predicts: "I do think there will probably be further price cuts. It's an ironic situation that goes against the normal microeconomic expectations. So in China, when companies cut prices, in this case, many consumers say, let's wait and see, we don't think it's at the bottom yet. So interestingly, it hasn't sparked the demand that we would normally expect when you cut prices."

For more expert insight and the latest market action, click here to watch this full episode of Morning Brief.

This post was written by Nicholas Jacobino

Video Transcript

- Tesla slashed prices in China again. Shares are now down over 5%, declining for the seventh straight day. Last year, China became the world's largest auto exporter with over 5 million sales overseas. This according to the China Passenger Car Association, with 25% of those exports being new energy vehicles. Many analysts are wondering if the United States is beginning to lose the EV war.

For more on this, let's bring in Stephen Dyer, who is the managing partner and head of the Asia Automotive and Industrials unit at AlixPartners Shanghai. Thanks so much for taking the time here with us. First and foremost, you think about the competitive landscape and how that is continuing to move about with some of the pricing moves. Why do you think all of other manufacturers are having to announce some of these price moves and what is that saying about the consumer right now?

STEPHEN DYER: Well, it's great for the consumer. There's been significant overinvestment in the Chinese EV sector over the years, as the government has supported the build out of that sector. So now we're seeing some of the chickens begin to come home to roost, so to speak, as firms are trying to gain share and gain market share and credibility with their brand.

- Stephen, do you think this is likely going to spark even another round of pricing cuts? And I guess what is the reaction there on the ground in China and the likelihood that this is really going to spur more demand than going forward?

STEPHEN DYER: Well, I do think there will probably be further price cuts, and it's an ironic situation that goes against the normal microeconomic expectations. So in China, when companies cut prices, in this case, many consumers say, let's wait and see. We don't think it's at the bottom yet. So it interestingly hasn't sparked the demand that we would normally expect when you cut prices.

- Stephen, as you look out into the kind of consumer sentiment around foreign names that are trying to sell cars in China and some of the investments that they've made to make sure that they're ramping up the production, at the same time where demand may be shifting to some of the more nationally produced names there, how does that impact some of the US companies that have ambitions to grow out their own ability to communicate, to continue to have relationship with the consumer in that region?

STEPHEN DYER: Well, certainly, the Chinese automotive brands last year and continuing this year have been big winners in both the China auto market and globally, becoming the number one export country. And the reasons for that are that some of the Chinese EV brands are much better at listening to the consumer and delivering the advanced technology, the infotainment, intelligent cockpit, as well as driver assist technology that at least Chinese consumers want and not focusing so much on the very difficult to achieve ride and handling and noise and vibration specifications that are traditional automakers forte.

So it does not bode well for global automakers in China. And so there's some catching up to do, I think.

- Steve, but when it comes to the future of Chinese automakers here around the world, specifically in the US, when you take into account what current President Biden has been saying about potential tariffs here, what former President Trump has been saying about tariffs if he is re-elected in November, how big of a challenge is this for Chinese automakers? And what are they doing or what do you anticipate they will do to navigate what is going to be an uncertain and potentially hard time here for those companies?

STEPHEN DYER: Yeah. Indeed, the geopolitical winds are blowing against the Chinese automakers and even suppliers. And they realize that. They have no-- they understand very well. And therefore, North America is probably not going to be their short-term target as they grow globally.

So Europe and other more emerging markets are the short-term target for exports and then even establishing assembly bases. I would expect North America to be the last on their list of priorities.

- Can pricing alone save some of the waning demand that we're seeing for EVs right now, Stephen?

STEPHEN DYER: Well, in China, as I mentioned, it's caused the ironic result that demand is stagnating for EVs until the prices hit the bottom. So when they do hit the bottom, certainly, it'll stimulate demand. And especially in the US and North America and Europe as well, these markets, according to a recent EV consumer survey that AlixPartners conducted globally, indicate that customers there, consumers there are also hungry for inexpensive EVs that will allow them to save on operating costs as well as initial purchase or lease costs.

- Stephen Dyer, we'll leave it there. Thanks so much for coming on with us here this morning. Head of the Asia Automotive and Industrial Unit at AlixPartners. Thanks, Stephen.