Tesla cuts prices in China to boost demand

The cuts follow Tesla boss Elon Musk’s comments last week that a ‘recession of sorts’ was under way in China and Europe.

Tesla Deliveries
These are the first price cuts by Tesla in China this year [File: David Zalubowski/AP Photo]

Tesla has cut starter prices for its Model 3 and Model Y cars by as much as 9 percent in China, reversing a trend of increases across the industry as demand appears to be softening in the world’s largest auto market.

The price cuts, posted in listings on the electric vehicle giant’s China website on Monday, are the first by Tesla in China in 2022 and come after Tesla began offering limited incentives to buyers who opted for its insurance last month.

Shares of the Austin, Texas-based firm were down 4.9 percent at $203.90 in early trading.

The price cuts also follow Tesla Chief Executive Elon Musk’s comment last week that “a recession of sorts” was under way in China and Europe, and Tesla said it would miss its vehicle delivery target this year.

Musk told analysts last week that demand was strong in the current quarter and that he expected Tesla to be “recession-resilient”.

China Merchants Bank International (CMBI) said Tesla’s price cuts underlined the growing competitive risk for electric carmakers in China, with industry-wide sales projected to slow into 2023.

“The price cuts underscore the possible price war which we have been emphasising since August,” said Shi Ji, an analyst with CMBI.

Tesla had cut prices in China last year to try to be more competitive in the country while in the United States, its largest market, the electric carmaker has raised prices over the past year on the higher costs of raw materials.

Data on Monday showed retail sales in China grew 2.5 percent in September, below the expected 3.3 percent rise and less than half of August’s 5.4 percent growth.

The US automaker and several Chinese rivals have hiked prices several times since last year as raw material costs rise. But Tesla has regularly adjusted prices of its cars in China, including reductions, reflecting government subsidies.

Tesla is now China’s third best-selling electric carmaker after BYD Motor and SAIC-GM-Wuling and is the only foreign player in the top 15 list published by the China Passenger Car Association.

“The price cut is primarily due to overall soft auto demand in China due to macro conditions and competition with leading local player BYD,” US Tiger Securities analyst Bo Pei said.

Pei said XPeng, Nio Inc and Li Auto will have to follow or face greater pressure on volumes.

Tesla told Reuters it was adjusting prices in line with costs. Capacity utilisation at its Shanghai Gigafactory has improved and the supply chain remains stable despite China’s stringent zero-COVID restrictions, leading to lower costs, it said.

The starting price for the Model 3 sedan was reduced to 265,900 yuan ($36,727) from 279,900 yuan, while that for the Model Y sport utility vehicle was cut to 288,900 yuan from 316,900 yuan, the product prices listed on its Chinese website showed.

Tesla upgraded its Shanghai factory this year, after which it delivered 83,135 China-made cars in September, setting an output record for the plant since production began in December 2019.

Source: Reuters