Tesla and NIO React to China’s Subsidy News

• On Thursday, China announced a new subsidy structure for electric vehicles. NIO stock fell almost 1.0%, while Tesla stock fell 3.6% after the news.
• Under the new subsidy structure, Tesla would have to lower its prices to be eligible for subsidies in China.

NIO (NYSE:NIO) stock has underperformed Tesla (NASDAQ:TSLA) stock this year. However, NIO fell less than Tesla stock on Thursday. China announced a new subsidy structure for electric vehicles. Last year, China drastically reduced subsidies for electric vehicles. Since then, the country’s electric vehicle sales have fallen every month.

According to Reuters, China announced that it will extend the subsidies for buying new energy vehicles to 2022. However, China will lower subsidies by 10% this year. The country will gradually lower the subsidies over the next two years. Notably, the subsidies would only apply to vehicles that cost less than 300,000 yuan (approximately $42,376). Reuters also reported that Tesla raised the prices on two China-made Model 3 variants after the announcement. NIO cars won’t have any subsidies since they’re priced above the threshold.

NIO has been fighting a survival battle. The company flagged concerns during its fourth-quarter earnings release. NIO raised almost $435 million through issuing convertible notes this year. The company also received a quasi-bailout from the municipal government of Hefei. A Reuters report said that China intends to “cultivate home-grown auto sector champions.” China will also encourage sales of cars with swappable batteries. Incidentally, NIO offers battery swapping technology.

Tesla received a red carpet welcome in China—in contrast to other automakers. The company got permission to go solo in China, while other auto giants had to form joint ventures with local partners. Tesla secured permission for its China Gigafactory quickly. China exempted some Tesla models from the purchase tax last year. The country also granted a subsidy to Tesla’s China-made electric vehicles.

Tesla’s China Gigafactory has been ramping operations and gaining market share in China from local electric vehicle producers. Notably, NIO’s sales have fallen sharply this year due to the COVID-19 pandemic.