In recent years, the electric vehicle (EV) market has once again taken center stage, attracting widespread attention from both consumers and investors. Two key developments have particularly stood out:

NIO's Q3 financial results sparked discussions about the performance of the so-called "new forces" in the automotive industry.

BYD and SAIC Maxus's requests for a 10% cost reduction from their suppliers, highlighting the growing cost pressures within the industry.

These events underscore the increasingly competitive landscape of the EV market. Let’s dive into these developments to better understand the complexities of this evolving sector.

Performance Highlights: Divergent Paths Among the "New Forces"

In the third quarter of 2024, Li Auto achieved a milestone, delivering 152,800 vehicles, a record high for the company. In comparison, XPeng Motors delivered 46,500 vehicles, marking a year-on-year increase of 16.3%. Meanwhile, NIO also posted a quarterly record, delivering 61,900 new cars.

However, despite these impressive delivery figures, the profitability picture tells a different story:

Li Auto reported revenue of 42.87 billion yuan, reflecting a 23.6% year-on-year increase. It also achieved a net profit of 2.8 billion yuan, representing 0.3% growth from the previous year and marking its eighth consecutive profitable quarter.

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XPeng Motors achieved revenue of 10.1 billion yuan, a growth of 18.4%. Of this, automotive sales accounted for 8.8 billion yuan, while the remaining 1.3 billion yuan came from non-core activities, including a strategic collaboration with Volkswagen. Despite its robust delivery growth, its core automotive revenue only increased by 12% year-on-year, falling short of the delivery growth rate and indicating room for improvement in profitability.

NIO, on the other hand, faced declining revenues, which fell to 18.67 billion yuan, a 2.1% year-on-year decrease. NIO’s average vehicle price dropped from 314,000 yuan a year ago to 269,000 yuan this quarter, significantly impacting its profit margins.

Among the three, Li Auto’s results stand out as the most successful, showcasing sustained profitability and strong growth in both revenue and deliveries. Conversely, XPeng and NIO continue to struggle with losses, with NIO facing the most significant challenges.

NIO’s Challenges: Balancing Premium Positioning and Profitability

As a high-end EV brand, NIO encountered significant growth obstacles in the third quarter, largely due to shrinking profit margins and adjustments to its pricing strategy. In September 2024, NIO ramped up promotional efforts, directly lowering its average vehicle price, which in turn weighed heavily on its total revenue.

Moreover, while NIO’s battery-swapping model is often touted as a unique value proposition, its high costs and lack of clear economies of scale have made it a contentious strategy. However, this service does offer unique advantages in alleviating "range anxiety," which remains a key concern for EV owners, helping NIO maintain its competitive edge in the premium segment.

Even so, to overcome its current struggles, NIO must find a better balance between its premium positioning and profitability, while enhancing its pricing power in the high-end market.

Supply Chain Battles: Cost Reduction Demands from BYD and SAIC Maxus

Both BYD and SAIC Maxus have recently requested their suppliers to reduce costs by 10%, sparking extensive industry debate. While their demands appear similar, the specifics reveal key differences:

BYD set a clear deadline, requiring suppliers to submit revised prices through its SRM system by December 15. This firm and precise stance demonstrates BYD’s strong commitment to cost optimization.

SAIC Maxus, by contrast, adopted a softer approach, expressing a "hope for support" from its suppliers, emphasizing collaboration and dialogue.

BYD later clarified that such negotiations are routine in the automotive industry, with the proposed price reduction being negotiable and not mandatory. This explanation eased some supplier concerns while highlighting BYD’s negotiation strength within its supply chain.

Indeed, as technologies advance, economies of scale expand, and management efficiencies improve, production costs are naturally expected to decrease. However, diminishing returns from scaling up, combined with the limitations of technology and management improvements, suggest that the room for cost reductions may be shrinking.

Financial Pressure Within the Supply Chain

The financial costs associated with supply chain operations are another crucial factor in production expenses. For instance, BYD commonly employs a "3+6" payment structure, consisting of a three-month credit period followed by a six-month acceptance bill. While this arrangement is standard in the industry, it imposes significant cash flow pressures on suppliers.

To accelerate cash flow, many suppliers resort to bill discounting, which incurs fees and interest rates of approximately 3% to 6%. This further erodes their profit margins, adding another layer of complexity to cost reduction negotiations.

Breaking the Cycle of "Involution" in the EV Industry

The pressing question for the EV market is how to maintain consumer benefits while ensuring the healthy development of the industry. In July 2024, China’s Political Bureau emphasized the need to "strengthen industry self-discipline and prevent vicious competition," signaling a top-down push for more sustainable industry practices.

"Involution" itself is not inherently harmful; the real risk lies in the inefficiencies and destructive competition it often brings. In the era of traditional fuel vehicles, consumers evaluated cars based on a variety of factors such as brand reputation, driving experience, safety features, and after-sales service. Yet, in today’s EV-dominated market, price has seemingly become the primary—or even sole—criterion for consumers.

This shift partly stems from the industry’s failure to educate consumers effectively and its early emphasis on affordability as a key selling point. As EVs have now achieved market dominance, the focus of competition must shift from price wars to brand differentiation.

Brand Differentiation: The Next Battlefield for EV Makers

China’s EV market has shown remarkable growth. In October 2024, retail sales reached 1.196 million units, a 56.7% year-on-year increase, with retail penetration rates exceeding 50% for four consecutive months. While this indicates that EVs have firmly "gone mainstream," it also means that competition is fiercer than ever.

For brands like NIO, XPeng, and Li Auto, the urgent task is to further define their market positioning and improve consumer perception. The long-established reputation of luxury brands like BMW and Mercedes-Benz exemplifies the importance of brand differentiation. For Chinese EV makers, breaking free from the labels of "technologically advanced" or "cost-efficient" and creating deeper emotional and aspirational connections with consumers will require sustained effort and innovation.

In this era of transformation, companies that successfully redefine their brand value will emerge as true winners. By shifting the focus from cost competition to value creation, China’s EV industry can overcome the challenges of "involution" and move toward a brighter, more sustainable future.