Electric vehicle manufacturers in China face challenges from covid-led supply chain disruption and rising EV battery material costs.
According to data released by the China Passenger Car Association (CPCA) on May 10 (Tuesday), Tesla sold 1,512 China-made electric vehicles in China in April, a drop of more than 95% from March. Tesla's production in the country fell 81% to 10,757 vehicles in April, compared to 55,462 in March.
Electric vehicle deliveries from China's three biggest Tesla rivals – Nio, Xpeng, and Li Auto – also began in April.
Li Auto was the worst performer among the major Chinese EV manufacturers, reporting a 62 percent monthly drop to 4,167 vehicle deliveries in April. Nio's vehicle deliveries fell nearly 50% month on month to 5,074 units in April, while Xpeng's volume fell 41.6 percent to 9,002 in the same period.
According to the China Passenger Car Association, China's passenger car sales fell 34% in April compared to March, the most significant drop in more than two years.
"Supply and demand will continue to face severe challenges in May, including disruptions from the Covid pandemic and Ukraine war, as well as a weakened economy and domestic consumption," CPCA Secretary-General Cui Dongshu said on Tuesday. Cui predicted a drop in sales in May, despite the fact that car companies have gradually resumed operations.
The drop comes as China imposes curfews in cities such as Shanghai, Guangzhou, and Jilin. According to Jefferies research, these cities are automobile manufacturing hubs, accounting for nearly one-third of China's production volume last year.
Shanghai, where Tesla's Gigafactory is located, has been closed for several weeks and may be closed for an extended period if the Covid outbreak continues. According to Reuters, Tesla has halted most production after a brief resumption due to supply chain issues with unidentified sources.
Because their factories are in less-affected cities, Xpeng and Nio have been able to survive the pandemic-caused disruption. Nio halted production at its Hefei factory before resuming operations in parts of its business on April 14.
Shen Yanan, president of Li Auto, said that roughly half of the company's suppliers had resumed operations following the widespread lockdown, but that supply chain uncertainties could continue to affect production.
Furthermore, Chinese automakers must contend with rising battery costs. Prices for Chinese lithium carbonate and lithium hydroxide, the main components of lithium-ion batteries used in electric vehicles, have increased tenfold since January 2021, when they were 50,000 yuan per ton.
The cost has risen faster than the cost of electric vehicles, which can be passed on to customers. To maintain profit margins, EV manufacturers must raise vehicle prices.
The rising cost of critical materials used in EV batteries has forced carmakers ranging from Tesla to China's homegrown EV companies like Li Auto and Xpeng to raise prices and pass on higher costs to customers.
Tesla announced on March 17 that the introductory edition price of the Model Y would increase by 15,060 yuan to 316,900 yuan, effective immediately. Previously, the US automaker raised the prices of two models of the Model 3 and the long-range Model Y by at least 14,248 yuan last week.
To offset rising costs, Guangzhou-based Xpeng raised the starting price of its P7 sedan by 32,600 yuan. BYD, China's largest domestic EV manufacturer, raised the prices of its Dynasty and Ocean brands by 3,000 and 6,000 yuan, respectively. It has raised prices for the second time in two months.
Following the price increase in lithium, EV manufacturers are eager to participate in lithium mining. "The price of lithium has skyrocketed! Unless costs fall, Tesla may enter the mining and refining industries directly "Elon Musk, CEO, tweeted earlier this month.
BYD has already established a lithium mining company. BYD won the bid for lithium mining in Chile in January through its subsidiary BYD Chile SpA.
Contemporary Amperex Technology Ltd (CATL), China's largest producer of EV batteries and a major Tesla supplier, has also increased its lithium project investments in response to rising material costs. In April, it was awarded exploration rights to a lithium clay project in China's southeastern Jiangxi province.
CAPA predicts that EV price increases will not deter customers this year, with demand expected to rise in the coming months.
"Despite recent price increases due to rising battery costs, Chinese EV deliveries will remain robust in the coming months due to strong customer demand. We anticipate that sales of new energy vehicles will reach 5 million units in 2022, representing a 42 percent increase year over year. By that time, new energy vehicles will account for approximately 18% of total new car sales in China," CAPA stated.
China's electric-vehicle sales increased 160 percent last year to a record 2.91 million units, reflecting the country's push to replace fossil-fuel vehicles with EVs.