Tesla cuts prices for second time in China as demand drops

Tesla has cut prices in China for the second time in less than three months, fuelling forecasts of a wider price war as demand weakens in the world’s largest car market.

The US automaker also cut prices on its best-selling Model Y and Model 3 electric vehicles in Japan, South Korea and Australia in what a person with direct knowledge of the plan said was part of an effort to help stoke demand for output from its Shanghai factory, its single largest production hub.

The shift is the first major move by Tesla since appointing its lead executive for China and Asia, Tom Zhu, to oversee global output and deliveries that have been at the heart of the company’s recent challenges after falling short of its 2022 delivery target.

Tesla shares fell 2.5 percent in active trading Friday. The stock has lost 70 percent of its value in the past year.

Automakers have long turned to incentives to control inventory, but until late last year, Tesla had been able to keep prices steady or even raise them due to strong orders.

But last month, CEO Elon Musk said “radical interest rate changes” had affected the affordability of all cars, new and used, and that Tesla could cut prices to sustain volume growth.

The latest cut in China, along with another in October and recent incentives for Chinese buyers, mean a 13 percent to 24 percent reduction in Tesla’s prices from September in its second-largest market after the United States, Reuters calculations showed.

Tesla slashed prices for all its Model 3 and Model Y cars in China between 6 percent and 13.5 percent, according to Reuters calculations based on the website prices. The starting price for the Model 3 was cut to 229,900 yuan ($33,427) from 265,900 yuan ($38,661).

Grace Tao, Tesla’s vice president in charge of external communications in China, said on Weibo that the price cuts in China reflected engineering innovation and answered Beijing’s call to encourage economic development and consumption.

Deliveries of Tesla’s China-made cars hit their lowest number in five months in December. Tesla’s Shanghai plant, which was expanded last year, also exports vehicles to Europe.

So far, there has been no sign of Tesla cutting prices in Europe, where sales jumped 93 percent in November year-on-year, according to sales data from the research group JATO Dynamics, and in 2022, the Model Y was the top-selling car for the second time.

Tesla also saw its share of Europe’s battery electric vehicle market jump to 18.9 percent in November from 12.3 percent in the same month a year earlier.

Subsidies end

Tesla implemented the price cuts days after Beijing ended a subsidy programme. Softening demand is forcing Tesla and its rivals to absorb the brunt of the move.

China Merchants Bank International (CMBI) said Tesla may have to do more, especially as competition with its Chinese rivals intensifies.

“Tesla needs to further cut prices and expand its sales network in China’s lower-tier cities amid ageing models,” CMBI analyst Shi Ji said.

“We expect new EV [electric vehicle] production capacity in China to outpace new demand in 2023,” Shi said.

But Sun Shaojun, a popular Chinese car blogger, said on Weibo that Tesla’s price cuts were so large that other automakers, including larger rival BYD would have to respond.

BYD recently raised the prices of its best-selling models after the government subsidies ended.

After the price cut, Tesla’s Model 3 was the equivalent of about $1,000 more than BYD’s Seal, a model launched in July. The Model 3 is now the same price as BYD’s best-selling Han EV.

BYD declined to comment on competitors’ pricing but said it would adjust its own according to changes in market demand.

BYD, which sells both plug-in and pure electric vehicles, saw its retail sales in China double in December while Tesla’s fell 42 percent, according to data from CMBI.

Miffed Tesla owners

Some Tesla owners in China who took delivery in recent months and did not qualify for the reduced prices said on Friday that they planned protests at Tesla showrooms in Shenzhen and Henan, screenshots of social media chats seen by Reuters showed.

Tesla had no additional comment. A Tesla spokesperson referred Reuters to Tao’s Weibo post.

The Chinese prices of the Model 3 and Model Y cars are now 24 percent to 32 percent lower than those in the United States, Reuters calculations showed, reflecting a range of factors, including material and labour costs.

Tesla also cut Model 3 and Model Y prices by about 10 percent each in Japan, the first time it had done so since 2021.

In the United States, the Model Y and Model 3 are eligible for up to $7,500 in clean vehicle tax credits as of this month under the Inflation Reduction Act, which became law in August.

In 2021, China accounted for just over a third of Tesla’s overall sales.