The recent surge in sales experienced by NIO and Xiaopeng Motors marks a significant turning point for these companies, who have faced nearly two years of sluggish demand in the electric vehicle (EV) marketEmployees from both firms are now embracing a sense of long-awaited excitement, finally able to revel in the thrill of record-breaking orders.

While precise sales figures have not been made public, the founding figure behind NIO, Li Bin, shared during a media interview following the launch of the L60 model that it “has seen explosive sales, with server capacity times increased by five.” Meanwhile, Xiaopeng Motors' president, Wang Fengying, who rarely appears in public, celebrated the impressive performance of the MONA 03 model by enjoying her first-ever glass of liquor.

Both the L60 and MONA M03 represent the most affordable offerings from their respective manufacturers, with the former starting at a price point of approximately 206,900 RMB but sinking as low as 149,900 RMB under the Battery as a Service (BAAS) scheme

In comparison, the latter holds a starting price of approximately 119,800 RMBThe combination of lower prices and superior features played a critical role in reviving the fortunes of both companies.

Similarly positioned, Li Auto has experienced its own transformationAfter struggling to sell the electric MEGA at 559,800 RMB, the company now finds itself riding a wave of success with the launch of its entry-level L6 modelThis pricing strategy is part of a larger industry trend among EV makers who are shifting focus toward more budget-friendly vehicles.

Circa 2014, NIO, Xiaopeng, and Li Auto, collectively referred to as the "new force of car-making," embarked on a journey aimed at capturing market share in the high-end segmentNow, nearly ten years later, they are all racing to penetrate the more accessible mass marketIt is essential for car manufacturers to diversify their market focus, a necessity brought to light by fierce competition.

However, entering the approximately 200,000 RMB bracket heralds a battleground saturated with competitors

Every successful vehicle will be quickly imitatedWith major players like Huawei and Xiaomi entering the fray, the stakes have never been higherFor NIO, Xiaopeng, and Li Auto to survive this cycle of competition, they need to broaden their portfolios and consistently secure victories.

The month of September proved to be particularly tumultuous, with around 50 new vehicle launches, yet both NIO and Xiaopeng again seized much of the market's attention.

Just 25 days following the debut of the MONA M03, Xiaopeng's CEO, He Xiaopeng, personally visited the production facility in Zhaoqing, where the model is manufacturedThis event coincided with the production of Xiaopeng Motors’ 500,000th vehicle and the 10,000th MONA M03 coming off the assembly line.

It has been a long time since Xiaopeng experienced the “sweet troubles” of exploding sales, as the company's monthly sales had long hovered around the 10,000 mark

Potential customers were hesitant to place orders due to concerns over Xiaopeng's business sustainability.

With the MONA M03 poised to become one of Xiaopeng's best-selling models, internal correspondence revealed that within just 48 hours of its launch, the company had secured orders for an impressive 30,000 vehiclesBy September 12, that number had surpassed 72,000, with projections indicating that orders would exceed 100,000 by the end of the monthProduct manager Yang Guang’s target is to sell over 10,000 vehicles per month.

For a car manufacturer, producing 10,000 vehicles in under a month poses formidable challenges, especially for a company like Xiaopeng, known for its previous delivery issuesHowever, a streamlined design with limited options for the MONA M03 is enabling Xiaopeng to increase supply chain efficiencyReports suggest that the Zhaoqing facility is actively hiring to double down on production capabilities.

The MONA's success is also boosting demand for another Xiaopeng vehicle, the G6. Data from independent automotive sales research firm CheFans indicated that last week alone, over 4,000 new orders were received for the G6. An insider revealed that Xiaopeng's total sales for September could likely exceed the 20,000 mark.

In contrast, the G6 faces competition from the recently launched L60, released by NIO’s second brand, Alps

alefox

This model targets family-oriented users, focusing on spacious interiors, advanced technology, affordability, and efficiencyNotably, it employs the BAAS solution, which enables operational costs in electricity to outstrip those associated with fuel.

Statistics show that the L60 garnered over 30,000 orders within just 72 hours post-launchThe sales efforts have become so intensive that every salesperson is managing dozens of orders simultaneously, and user experience officers are even recruiting new staff online to meet the heightened demand.

In response to the eager reception of the L60, Li Bin engaged his team late into the night following the car's launch, discussing strategies for future deliveriesHis ambitious expectations are to deliver 20,000 units within the remaining months of the year and to establish a monthly production capacity of 20,000 vehicles by March of the following year.

Internal communication revealed that Li Bin actively visited production facilities ahead of the L60’s release, instilling confidence that the issues encountered with the ET5 model would not be duplicated.

It’s a fortunate time for others too, like Li Auto

The introduction of the budget-friendly L6 five months ago has rejuvenated the company, shifting consumer sentiment from the faltering MEGA to an average of 20,000 sales a month, leading to an impressive total of 48,000 units sold across their entire range in August alone.

If sales figures for 100,000 units serve as a gateway for electric vehicle manufacturers, the competition has intensified around who can consistently produce and sell one million units per yearHe Xiaopeng mentioned during a recent technology conference that achieving this level of production is necessary to remain competitive in an increasingly cutthroat market.

To achieve higher sales volumes, automakers inevitably need to offer a wider range of affordable modelsYet, a harsh truth reveals that these lower-priced vehicles might push down overall profit marginsThe MEGA’s dismal performance had compelled Li Auto to cut prices across their range, yet the L6’s sales comeback is pushing them back towards their peak performance.

Nevertheless, market responses have fallen short of expectations

Reports indicated that as sales of the lower-margin L6 surged, Li Auto’s gross margin might contract to 18%, indicating a challenging financial environment.

Li Auto’s founder asserts that a healthy gross margin for the automotive industry should hover around the 20% mark, but few manufacturers are actually hitting this targetRecent financial reports have shown declines in Li Auto’s margins, with the latest figures hovering around 19.5%. Meanwhile, NIO and Xiaopeng’s strategies of introducing lower-priced models has drawn scrutiny, as many worry that this will precipitate reductions in average gross margins.

Responses from employees at NIO’s Alps project and Xiaopeng suggest uncertainty regarding their companies’ specific profit margins, but there is a general consensus that neither firm would allow prices to drop excessivelyLi Bin has previously stated that despite the fierce price competition in the automotive landscape, NIO will avoid compromising profitability for pricing strategy

The mid-term goal remains to achieve a gross margin of 15%. If monthly deliveries reach a target of 20,000-30,000, the brand can attain breakeven profitsThe production costs of the L60 are approximately 10% lower than that of Tesla’s Model Y, with NIO optimizing its cost efficiency through strategic sourcing.

Further reports suggest that the BOM (Bill of Materials) cost for the L60 stands at around 140,000 RMB, allowing a retail price point of 150,000 RMB to ensure healthy marginsWith effective cost management, the L60 emerges as NIO’s most efficient model to date.

Industry insiders suggest that automotive gross margins hinge on various factors, such as adjustments in manufacturing and supply chain dynamicsThus, the expectation that 200,000 RMB vehicles will naturally incur higher margins is a misunderstanding.

Similarly, the MONA M03 finds itself in a parallel situation

Xiaopeng’s development lead for the MONA series, Jiang Wen, indicated that as production and sales figures robustly increase through October and November, the company aims to publish financial disclosures reflecting true profit margins in the auto sector, emphasizing that scale is the king in this industry.

Despite being in operation for a decade, NIO and Xiaopeng still grapple with unprofitabilityLi Bin expressed hopes for NIO to break even by 2024, yet the timeline has inevitably been pushed back with expectations for profitability delayed by another yearMeanwhile, He Xiaopeng anticipated Xiaopeng Motors achieving financial stability by 2025.

With less than a year remaining until the anticipated profitability timeframe, both companies recognize that expanding their scale directly corresponds to the possibility of improved gross margins and edging closer to becoming profitable operations.

Facing the expansive mass market poses significant challenges

Automakers are keen to utilize diverse brands to cater to various consumer segmentsBYD, for instance, leverages its brands like Yangwang and Fangchengbao to penetrate the premium marketNIO, Xiaopeng, and Li Auto have all migrated down from the high-end market and are now focused on increasing their market shares in the budget segment, specifically targeting vehicles priced below 300,000 RMB.

NIO aims to capture market share from joint-venture fuel vehicles within the range of 150,000 to 200,000 RMB, a segment often described as the golden soil and final stronghold of traditional vehicle producersOn the other side, the MONA M03 aims to bring smart driving capabilities to the sub-150,000 RMB price point, an area already dominated by BYD.

Unsurprisingly, the last couple of years have brought trials for both NIO and XiaopengNIO’s stock plummeted from its peak of 67 USD to about 7 USD, whereas Xiaopeng’s shares fell from 56 USD to around 12 USD.

Such market pressures are felt not only by the automakers but also by their employees

Both manufacturers indicated that their end-of-year bonuses may be disappointingHowever, with the surge in orders for the L60 and MONA M03, employee sentiment has shifted, evoking hope for more substantial year-end rewards.

As they navigate the broader mass market, automakers are banking on launching additional models to create potential hitsIn the first half of next year, NIO is set to release a budget car named Firefly, aimed at the 100,000 RMB marketMeanwhile, He Xiaopeng has revealed plans to unveil nearly 30 new models over the next three years to solidify the company’s presence in the 100,000 to 400,000 RMB segment.

However, competition among automakers is no longer solely about individual models; each brand now faces multiple rivalsThe production logic of building 400,000 RMB cars starkly contrasts with that of manufacturing budget-friendly 100,000 RMB ones.

Even the rapidly approaching milestone of 1 million cumulative sales for Li Auto does not exempt it from facing stiff competition

In the extended-range vehicle sector, it constantly wrestles with rival firmsShould Li Auto introduce a pure electric SUV next year, it will be back in contention with NIOMoreover, the launch of the G6 and L60 positions them as direct challengers to Tesla's Model Y, while NIO’s ES9 and Xiaopeng’s G9 round out the competitive landscape.

During a previous forum held at the China Electric Vehicle Hundred Person Meeting, BYD’s chair, Wang Chuanfu, emphasized that the industry has entered a brutal elimination roundBusiness operations are also undergoing structural changes, necessitating increased concentration within the sectorConcurrently, the EV market has begun a cyclical adjustment phase, and companies must quickly establish scale advantages and solid brand identities.

As NIO, Xiaopeng, and Li Auto strategize their moves, their decision-making capabilities will impact the broader landscape and their own survival in an increasingly competitive industry.