Tesla-initiated Price War Signals Market Restructuring... Software Determines Competitiveness

As competition among companies over electric vehicle prices intensifies, an analysis suggests that the market is likely to be reorganized around companies that survive. Startups facing financial difficulties are expected to be eliminated, while established automakers will actively launch electric vehicles with refined product competitiveness. Since differentiation through price competition alone is difficult, non-price competition led by software is also expected to intensify.

Hyunjin Lim, a senior researcher at the Korea Automotive Technology Institute, released a report titled "The Era of Electric Vehicle Price Competition" on the 17th, covering these points. Following Tesla's price cuts centered on the Model 3 and Model Y to achieve its sales targets this year, Chinese companies such as Xiaopeng and BYD have also consecutively lowered electric vehicle prices. Lucid, BMW, Volkswagen, and others have either reduced prices or decided to do so according to market conditions. Additionally, many companies are concretizing plans to launch affordable electric vehicles, which were previously offered only by a few, based on sufficient demand.

Tesla store in Colorado, USA

Lim analyzed that this is partly to proactively respond to the reduction of electric vehicle purchase subsidies while increasing market share. China eliminated electric vehicle subsidies this year, and countries in Europe such as Germany and the UK are also trending toward reducing subsidies.

To enhance price competitiveness, automakers are responding by improving supply structures, developing alternative technologies, and sharing platforms. Hyundai, Volkswagen, General Motors, and others have directly invested in mines or mining companies to lower battery costs. Many global automakers have started using lithium iron phosphate (LFP) batteries, which were mainly used by Chinese companies, and some Chinese manufacturers are considering mass production of sodium-ion batteries, which are cheaper than LFP.

Senior researcher Lim explained, "In the short term, automakers' per-unit sales profits will decrease, indicating the possibility of the electric vehicle market structure being reorganized around a few surviving companies. If price competition intensifies without improving production cost structures, the margins that individual automakers can secure will shrink."

BYD electric car Atto 3 exhibited at the Tokyo Auto Salon held in January this year

According to the American media outlet Automotive News, an investigation of eight electric vehicle startups found that as of the end of last year, only two?Fisker and Workhorse?could cover operating costs for more than a year. Since electric vehicles have a lower entry barrier compared to traditional internal combustion engine vehicles, many startups have entered the market, but many are now facing existential crises. The automotive industry applies economies of scale, where companies producing above a certain volume gain competitive advantages. S&P estimates that latecomer electric vehicle startups need about $2 billion to compete with established automakers.

While price competition reduces profits from car sales, new business models are emerging as market share grows. A representative example is subscription services, such as Tesla's Full Self-Driving (FSD) autonomous driving software and Kia's parking assistance and streaming options through the Connect Store.

Senior researcher Lim predicted, "It is difficult to guarantee a company's long-term survival through pricing strategies alone, so companies are focusing on various non-price competition factors and finely differentiating their products. For this, core software-related foundational technologies such as cybersecurity, driver assistance systems, and over-the-air software updates are expected to be key."

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This content was produced with the assistance of AI translation services.