Players in the Chinese EV industry may have little choice but to square off in a potential fight to the death, according to the billionaire cofounder of Xpeng. No matter who wins, though, their Western peers stand to lose.
As China’s carmakers pursued profitable growth in the West, the country took Japan’s crown as the largest automotive exporter in the world last year despite punitive trade tariffs.
Unfortunately for car executives like Xpeng’s He Xiaopeng, they pushed too hard too fast and sparked a sudden awareness that China could overwhelm foreign markets with a flood of cheap EVs.
Now a trade probe in Europe could diminish exports at a critical juncture.
“This year marks the beginning of a fierce competition that may end in a ‘bloodbath’,” the Xpeng cofounder wrote Sunday following the end of the Lunar New Year holiday in a staff letter obtained by CNBC.
The country has been trapped in what some experts believe is a deflationary spiral triggered by a debt overhang in the real estate sector, the key engine of the economy and a popular investment class due to China’s perennially low deposit rates and extensive capital controls.
To stimulate flagging consumer confidence, Elon Musk lit a fuse at the start of last year that would spark a broader price war conflagration across the Chinese EV industry—one that has now been raging for months.
In January, Xpeng vehicle sales fell to just 8,250 cars versus the stable monthly pace of 20,000 vehicles sold in the final quarter of 2023.
The drop proved indicative of the broader Chinese EV and plug-in hybrid market, as demand fell by nearly 40% versus December, the first month-on-month drop since August.
To regain momentum, CEO He told the staff at Xpeng that he aims to hire thousands more engineers and launch 30 models over the next three years.
VW investment
In what will now no doubt be viewed in hindsight as very shrewd timing, the company’s cofounder and chief executive negotiated fresh financial backing from Tesla rival Volkswagen Group in November.
In exchange for selling a 5% stake in his company worth roughly $700 million to VW, all He needed to do was pledge to codevelop a few new EVs and offer VW a non-voting seat on its board.
Those automakers that do survive the shakeout of China’s EV market—and VW’s investment suggests Xpeng may very well be one of them—could conceivably consolidate into a handful of national champions capable of “demolishing” the competition, as Musk recently warned.
For Xpeng’s He it could be sweet revenge. In 2019, Musk accused the Chinese EV maker of having “transparently imitated Tesla’s design, technology, and even its business model.”
