[Inside Chodong]Consumers Reluctant to Buy, Suppliers Eager to Sell

Despite Sluggish Demand in the Domestic EV Market,
Tesla's Flagship Models Drive Strong Performance

As electric vehicle consumption slows down, various analyses have emerged regarding the so-called "chasm," or temporary demand slowdown phenomenon. Background factors cited range from the idea that early adopters and those who wanted to buy have already done so, to reluctance due to inconvenient charging infrastructure, higher prices compared to internal combustion engine vehicles, and an overall contraction in the new car market.

In the subdued domestic electric vehicle market, Tesla stands out. With its flagship model, the Model Y, Tesla became the second best-selling foreign brand on a monthly sales basis. The electric sports utility vehicle (SUV) Model Y not only ranked first among all imported car models but also placed sixth overall when compared to domestic internal combustion engine models. Despite government subsidy criteria changes that cut consumer subsidies for Tesla purchases by more than 60%, demand remained robust.

Tesla’s intermittent exports from its Chinese factory, rather than at regular intervals, also caused demand to concentrate at certain times. Nevertheless, the market message from Tesla’s performance?outperforming well-established domestic electric vehicles with the advantage of being on its "home ground"?is clear. It underscores the importance of having a unique brand identity to build a fandom and that pushing through with price competitiveness remains effective in the market. This has long been an unwritten rule in marketing. While manufacturers of transportation means may feel the pace of change driven by technological advances is rapid, consumer groups inevitably respond more slowly.

Price-cutting competition among suppliers during periods of sluggish consumption is not necessarily bad. It is one of the fundamental functions of the market itself. Consumers can obtain goods at lower prices, and among the previously crowded supplier groups, the capable can be distinguished from the less capable. The Chinese electric vehicle market, which grew against the backdrop of a large market and government support policies, is also experiencing a similar downturn. BYD, which competed with Tesla for the world’s number one spot, has been lowering prices on key products one after another. The Chinese electric vehicle market, which had slowed earlier this year, rebounded last month with nearly 700,000 units sold, marking a recovery after two months.

South Korea is also directly affected. It is one of the breakthrough markets for Tesla, whose profitability has worsened compared to the past. From January to February this year, China’s electric vehicle export value was $5.149 billion, down about 13% from the same period last year. Even as overall electric vehicle exports slowed, exports to South Korea, Canada, and Brazil all increased by several tens of times.

The increase in exports is mostly estimated to be Tesla units. It is reported that thousands of Model Ys and the recently facelifted Model 3, the first update in seven years, have recently arrived in South Korea. The newly revealed price of the new Model 3 in South Korea is more than 20 million won cheaper than two years ago when a severe shortage occurred. Although the country of origin has changed and the supply chain for key components like batteries differs, the product appeal has improved enough to offset this, creating a strong positive sentiment among potential buyers.

Canada also shifted from importing Tesla units produced at the U.S. factory to those from the Chinese factory. Brazil began imposing tariffs on foreign electric vehicles this year, and it appears exports increased significantly before the tariff rate rose. Tesla is responding nimbly according to market conditions. Beyond adopting advanced manufacturing methods or refining technology for autonomous driving, Tesla has also acquired sales know-how typically seen in legacy manufacturers with extensive experience. As Toyota has demonstrated, the stage where the most added value is generated is sales. Is it premature to speculate on who will be the frontrunner in overcoming the chasm?

Choi Dae-yeol, Deputy Head of Industry IT Department