Tesla (TSLA.O) has reduced starter prices for its Model Y and Model 3 cars by as much as 9% in China, reversing a trend of hikes across the industry amid signs of waning demand in the world’s biggest auto market.
The price cuts, put up in listings on the electric vehicle (EV) giant’s China website on Monday, are the first by Tesla in China in 2022, and come after Tesla started giving limited incentives to customers who purchased its insurance in September.
Shares of the Austin, Texas-based firm slid 4.9% at $203.9 in early trade.
The price cuts also come after Tesla Chief Executive Elon Musk’s comment last week that “a recession of sorts” was ongoing in Europe and China, and Tesla said it would fail to meet its vehicle delivery target this year.
Musk told analysts last week that demand was high in the current quarter and that he anticipated Tesla to be “recession-resilient”. China Merchants Bank International (CMBI) said Tesla’s price reductions underscored the rising competitive risk for EV makers in China, with industry-wide sales expected to slow into 2023.
Shi Ji, an analyst with CMBI, said:
“The price cuts underscore the possible price war which we have been emphasizing since August.”
Tesla lowered prices in China in 2022 in an effort to enhance competitiveness in the country, while in the United States, its biggest market, the EV maker has hiked prices over the past year on the increased cost of raw materials.
Data on Monday indicated that retail sales in China rose 2.5% last month, missing expectations for a 3.3% rise and less than half of August’s 5.4% growth.
The U.S. automaker and several Chinese peers have jacked up prices several times since 2021 amid higher raw material costs. But Tesla has frequently adjusted the prices of its cars in China, including reductions, resulting from government subsidies.
Tesla is currently China’s third best-selling EV maker after SAIC-GM-Wuling (GM.N)(600104.SS) and BYD Motor (002594.SZ), and is the only overseas player in the top 15 list posted by the China Passenger Car Association.
U.S. Tiger Securities analyst Bo Pei said:
“The price cut is primarily due to overall soft auto demand in China due to macro condition and competition with leading local player BYD.”
Pei said Nio Inc, XPeng, and Li Auto will have to follow suit or face significant pressure on volumes.
Tesla told Reuters it was adjusting prices in line with costs. Capacity utilization at its Shanghai Gigafactory has increased, while the supply chain remains unaffected despite the impact on the economy of China’s tight zero-COVID curbs, leading to reduced costs, it said.
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The starting price for the Model Y sport utility vehicle was reduced to 288,900 yuan from 316,900 yuan, while that for the Model 3 sedan was lowered to 265,900 yuan ($36,727) from 279,900 yuan, the product prices listed on its Chinese website showed.
Tesla upgraded its Shanghai factory earlier in 2022, after which it supplied 83,135 China-made EVs last month, beating an output record for the plant since production started in December 2019.
($1 = 7.2399 Chinese yuan)
