Tesla is cutting prices in China and other Asian markets as sales slow

SHANGHAI, Jan 6 (Reuters) – Tesla (TSLA.O) cut electric car prices in China for the second time in less than three months on Friday, fueling expectations of a wider price war for battery-powered vehicles in the world’s biggest auto market, where demand has weakened.

Tesla also cut the prices of its best-selling Model Y and Model 3 electric cars in Japan, South Korea and Australia.

The coordinated price cuts were part of an effort to boost demand for Tesla’s output at its Shanghai factory, the company’s largest manufacturing hub, according to a person with direct knowledge of the plan.

It was also the electric vehicle maker’s first major move since Tesla appointed its CEO for China and Asia, Tom Zhu, who is based in Shanghai, to oversees global production and supply.

Tesla shares fell 5.9% in premarket trading after the price cut to $104.

Incumbent automakers have long turned to incentives in the face of weaker demand to control inventory, but until late last year Tesla was able to hold prices steady — or even raise them — because of a strong flow of consumer orders.

Last month, Musk said “radical changes in interest rates” has affected the affordability of all cars, new and used, and that Tesla may lower prices to support volume growth

The latest cut in China, along with price cuts in October and incentives given to Chinese buyers over the past three months, mean Tesla’s prices have fallen 13% to 24% since September in its second-largest market after the United States, according to calculations by Reuters.

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

Grace Tao, Tesla’s vice president in charge of external communications in China, posted on her Weibo social media account on Friday that Tesla’s price cuts in China reflect engineering innovation and “respond to the government’s call to promote economic development and consumption “.

Shipments of China-made Tesla cars have taken a hit the lowest in five months in December.

The cuts came just days after Beijing ended a subsidy program that helped build the world’s largest electric car market. Declining demand has forced Tesla and its competitors to bear the weight of this decision.

China Merchants Bank International (CMBI), which warned in July that China’s EV sector was heading for a price war, said Tesla’s price cuts confirmed that prediction, adding that the US firm may need to do more, especially as competition with Chinese competitors is intensifying.

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

“We expect new EV production capacity in China to outpace new demand in 2023, and Tesla Shanghai’s capacity utilization could drop to around or even below 80% this year if the Berlin plant ramps up.”

Tesla’s factory in Shanghai, which was expanded last year, also exports cars to Europe. There are no immediate indications of a price cut by the EV maker in these markets.

But Sun Shaojun, a popular Chinese auto blogger, said on Weibo that Tesla’s price cuts were so big that other automakers, including Tesla’s bigger rival BYD (002594.SZ) will be forced to respond to this market.

BYD recently raised the prices of its best-selling models after a government subsidy program expired at the end of the year.

After Friday’s price cut, Tesla’s Model 3 was about $1,000 more expensive than BYD’s Seal, a model that went on sale in July. The Model 3 is now priced the same as BYD’s best-selling Han EV.

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

BYD (002594.SZ)which sells both plug-in and pure electric vehicles, reported a doubling of its retail sales in China in December, while Tesla fell 42 percent, according to data from CMBI.

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

Tesla offered no further comment when contacted by Reuters. A Tesla spokesman referred Reuters to Tao’s Weibo post.

Chinese prices for Model 3 and Model Y cars are now 24% to 32% lower than in the United States, Tesla’s biggest market, Reuters calculations showed, reflecting a range of factors including different materials and labor expenses.

Tesla also cut the prices of Model 3 and Model Y cars by about 10% each in Japan, for the first time since 2021.

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

In 2021, China will account for just over a third of Tesla’s total sales.

($1 = 6.8775 Chinese Yuan)

($1 = ¥133.9200)

Reporting by Zhang Yang and Brenda Guo; Editing by Kim Coghill and Muralikumar Anantharaman

Our standards: Thomson Reuters Trust Principles.

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