Nio takes on VW in electric car price war as Chinese EVs take on western incumbents

Chines car maker Nio has unveiled plans to take on European car giant Volkswagen in its own market as it prepares to launch electric vehicles below €30,000 into the European market.

“Yes, in terms of price that means we are also attacking Volkswagen more strongly than before,”  Nio founder William Li told German newspaper Der Spiegel in a recent interview.

The move is significant. Although Chinese car companies already produce most of the world’s electric vehicles, up until now the majority of sales have stayed in China. Analysts from Morgan Stanley, however, believe that’s about to change.

“The message from our China Autos team is clear. Chinese EVs are coming to Western markets,” writes Adam Jonas in Morgan Stanley’s recent analysis.

“For years, China EV demand exceeded supply, allowing domestic brands to engage in a ‘battle of the fittest’ within their home market as the products got cheaper and better.  Slowing China EV sales and a ‘gloves are off’ pricing posture from Tesla has accelerated the dawn of the Chinese export model.”

Morgan Stanley says China has surged passed Germany into second spot on the key measure of global vehicle exports. China exported 3.1 million vehicles in 2022, up almost threefold from 1.1 million in 2020.

While Chinese exports tripled, Japan’s exports remained steady. Chinese exports in 2019 were just a quarter of Japanese exports. In 2022 they’re almost equal.

Morgan Stanley says China’s incursion into European and other western markets is being driven by growth in cost-competitive electric vehicles. “The topic has not escaped the attention of European auto industry executives,” it notes.

And this shift is already starting to play out with the decision by  Nio to take on Volkswagen.

A Reuters report in February said that Nio planned to build a factory to produce budget EVs under a new brand for export to Europe from as early as next year.

Speaking at the Shanghai Autoshow earlier this month, Nio’s Li said Chinese EV makers should brace for possible protectionist moves by foreign governments as they seize on their cost advantages to expand exports.

Growing demand for Chinese brand EVs in Europe

Morgan Stanley thinks Chinese EV exports will continue to grow because of three factors. Lower NEV penetration overseas compared to China, greater model variety with superior price-performance ratio and low priced materials including batteries.

Morgan Stanley says they think that Chinese automotive imports into the EU could hit 20% of total EU auto imports by the end of 2023. That up from less than 1% just five years ago.

Chinese EV maker BYD has already unveiled a number of vehicles it intends to launch in Europe, with the €38k Atto 3 and €30k Dolphin both coming soon.