Last Thursday, a group of 16 automotive companies, including Nio (NYSE:NIO), Li Auto (NASDAQ:LI), XPeng (NYSE:XPEV) and Tesla (NASDAQ:TSLA), signed a pledge enacted by the China Association of Auto Manufacturers (CAAM) to avoid “abnormal pricing.” The pledge could be viewed as a sort of price war truce between the companies that could potentially aid profitability within the entire industry.
On Friday, Tesla launched a revamped referral program for Model 3 and Y buyers. Referrers would receive 10,000 credits, while the customer using the referral would receive a cash discount and the ability to use full-self driving (FSD) for free for a limited time.
Following this program, the CAAM stated that the pricing pledge had violated China’s anti-trust law and that it would be removed from the commitments that the automakers had signed.
NIO Stock: China Auto Group Cancels Key Pact
The removal of the pricing pledge could have both positive and negative impacts for NIO stock. Auto makers should be judged on the quality of their vehicles. And higher-quality vehicles should be sold at higher prices, independent of what other auto makers are selling their vehicles for. At the same time, more established companies, like Tesla, can afford to sell their vehicles at competitive prices and with aggressive referral programs due to economies of scale and brand awareness. This could hurt emerging electric vehicle (EV) companies like Nio.
Meanwhile, Nio recently reported its delivery metrics for June. Deliveries totaled 10,707 vehicles, down by 17% year-over-year (YOY). Of the deliveries, the most popular vehicle line was premium smart electric SUVs, with 6,383 units sold. Nio’s June deliveries showed a significant YOY decline, although shares have gained over 5% since the announcement was made.
In other news, a report from consultancy firm AlixPartners has Nio’s shareholders excited. According to its estimates, Chinese automotive companies are on track to provide over 50% of cars sold in China this year for the first time ever. Previously, legacy leaders like Volkswagen (OTCMKTS:VWAGY) and Toyota (NYSE:TM) controlled the Chinese automotive market. Now, with the introduction of higher-technology vehicles, the tide may be turning in favor of newer EV companies. By 2030, AlixPartners’ Stephen Dyer believes that nine million Chinese-branded cars will be sold annually.
On the date of publication, Eddie Pan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
