Tesla has cut prices in China for the second time in less than three months, fueling predictions of a wider price war as demand weakens in the world’s biggest auto market.
The U.S. automaker also cut prices on its best-selling Model Y and Model 3 electric vehicles in Japan, South Korea and Australia, according to a person with direct knowledge of the plan, part of an effort to help boost demand for output from its Shanghai factory, its largest production center.
The change is Tesla’s first major move since it appointed its China and Asia CEO, Tom Zhu, to oversee global production and supplies, which have been at the heart of the company’s recent challenges after failing to meet its delivery target through 2022
Tesla shares fell 2.5% in active trading on 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 was able to hold prices steady or even raise them due to strong orders.
But last month, CEO Elon Musk said that “radical changes in interest rates” have affected the affordability of all cars, new and used, and that Tesla may cut prices to support volume growth.
The latest cut in China, along with another in October and recent incentives for Chinese buyers, mean Tesla’s prices have fallen 13 to 24 percent since September in its second-largest market after the United States, Reuters calculations show.
Tesla cut prices for all its Model 3 and Model Y cars in China by between 6 percent and 13.5 percent, according to Reuters calculations based on 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 reflect engineering innovation and meet Beijing’s call to encourage economic development and consumption.
Shipments of Tesla’s Chinese-made cars hit a five-month low in December. Tesla’s factory in Shanghai, which was expanded last year, also exports cars to Europe.
So far, there are no signs of Tesla’s price cuts in Europe, where sales jumped 93 percent in November year-on-year, according to sales data from research group JATO Dynamics, and in 2022 the Model Y was the best-selling car for a second time .
Tesla also noted that its share of the European battery electric vehicle market jumped to 18.9 percent in November from 12.3 percent in the same month a year earlier.
End of subsidies
Tesla implemented the price cuts days after Beijing ended the subsidy program. Declining demand is forcing Tesla and its competitors to bear the brunt of the move.
China Merchants Bank International (CMBI) said Tesla may need to do more, especially as competition from Chinese rivals intensifies.
“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 are expecting a new EV [electric vehicle] production capacity in China to outpace new demand in 2023,” Shi said.
But Sun Shaojun, a popular Chinese auto blogger, said on Weibo that Tesla’s price cuts were so big that other automakers, including larger rival BYD, would have to respond.
BYD recently raised the prices of its best-selling models after the end of government subsidies.
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 priced the same 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 fell 42 percent, according to CMBI data.
Frustrated Tesla owners
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 Tesla showrooms in Shenzhen and Henan, screenshots of social media chats seen from Reuters.
Tesla had no further comment. A Tesla spokesman referred Reuters to Tao’s Weibo post.
Chinese prices for Model 3 and Model Y cars are now 24 percent to 32 percent lower than in the United States, Reuters calculations show, reflecting a range of factors including material and labor costs.
Tesla also cut the prices of the Model 3 and Model Y by about 10 percent 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 Inflation Reduction Act, which took effect in August.
In 2021, China will account for just over a third of Tesla’s total sales.
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