China EV startup Xpeng will launch a brand that’s 50% cheaper, following Tesla downmarket to survive a slowing EV market

China’s EV market is having a slow start to 2024. Sales growth is slowing in the current quarter compared to the final quarter of 2023, with companies already returning to price cuts and other incentives to keep growing.

Now, one premium EV startup in China may be going in a more affordable direction to boost sales. On Saturday, Xpeng announced that it would launch a new brand that’s 50% cheaper than other premium models on the market—and that the new models will hit the market in just a month’s time.

Xpeng shares rose over 7% in Hong Kong trading on Monday.

Xpeng CEO He Xiaopeng said the company will sell the new models between 100,000 and 150,000 Chinese yuan ($13,894-$20,841), around half the price of the 200,000 to 300,000 yuan ($28,211-$42,317) range common for premium models today.

In an interview featured on the state broadcaster CCTV, Xpeng’s CEO He also said its mass market models will come with autonomous driving systems.

The Chinese startup, founded in 2014, has long positioned itself as a premium brand. Xpeng’s P7 sedan, one of its better selling models, currently starts at 209,900 yuan ($29,608); the company’s EVs currently start above 200,000 yuan ($28,211).

Going downmarket

But now Xpeng may be looking to enter the mass market, defined by EV giant BYD and its affordable models. BYD sold 3.02 million vehicles last year, primarily in China, with a majority of them priced below 200,000 yuan ($28,211).

Other EV companies are also going downmarket. Fellow Chinese EV startup Nio will reveal its mass market brand in May, the company said last week.

And outside of China, the U.S.-headquartered Tesla has promised to launch an entry-level vehicle priced at around $25,000 as soon as late 2025.

Price wars, first started by Tesla in late 2022, have become a feature of China’s EV market as brands try to stay competitive. CreditSights, a Fitch company, expects price competition to “remain intense” across all market segments.

Even BYD is cutting prices. The company cut the price of its cheapest car, the Seagull, by 5% earlier this month, and set the starting price of the new version of its Yuan Plus crossover—known as Atto 3 in overseas markets—at 119,800 yuan ($16,899), 12% lower than its predecessor.

But selling more affordable cars could put pressure on profit margins. Xpeng reported a margin of -6.1% for the quarter ending Sep. 30, 2023. The company reported a net loss of 3.89 billion yuan ($550 million) for that quarter.

Xpeng will report fourth-quarter and full-year earnings on Tuesday.

Sourced from Fortune