Classic Tesla in China, Price Finally Reduced by 9%

(Photo by AFP) [Image source=Yonhap News]

[Asia Economy Reporter Yujin Cho] Tesla, struggling amid intensified competition in the Chinese electric vehicle market, has finally cut its sales prices by up to nearly 9%. Facing declining demand as it falls behind domestic companies backed by the Chinese government, Tesla has taken a gamble by lowering prices.

According to major foreign media on the 24th (local time), Tesla has reduced the base prices of its Model 3 and Model Y vehicles by 5-9% in response to weakening demand in the Chinese market.

Tesla lowered the starting price of the Model 3 listed on its official Chinese website from 279,900 yuan to 265,900 yuan, a 5% decrease, and the Model Y from 316,900 yuan to 288,900 yuan, an 8.8% decrease.

This is the first time Tesla has cut prices in the Chinese market this year. Earlier this year, it raised prices twice, citing rising raw material costs and bottlenecks in production and delivery.

Tesla explained the price adjustment was due to changes in production costs. The decision was attributed to reduced production costs resulting from improved utilization rates at Tesla’s Shanghai Gigafactory and stabilization of the global supply chain.

However, experts say Tesla’s price cuts were already anticipated. Wang Hanyang of 86 Research stated, "The order intake for Model 3 and Model Y is not meeting the expanded production capacity of the Gigafactory," adding, "It appears to be an effort to secure more orders through price reductions."

With domestic companies’ strong performance in the Chinese electric vehicle market, Tesla received a third-quarter report card below market expectations. Tesla CEO Elon Musk also expressed concern about poor results after the Q3 earnings announcement, saying, "We are facing a recession in China, which is weighing on demand."

Meanwhile, Tesla’s biggest rival in the Chinese market, BYD, is rapidly advancing, setting a new record by selling 200,973 electric vehicles in September alone. For the entire third quarter (July to September), BYD sold 537,164 units, significantly surpassing Tesla’s 343,830 units.

According to data compiled by the China Passenger Car Association, domestic Chinese electric vehicle manufacturers accounted for 80% of total electric vehicle sales in China from January to July this year, indicating that Tesla is losing significant market share.

Bloomberg reported that domestic electric vehicle companies such as Nio and Xiaopeng, supported by government backing, are expanding their lineups to include SUVs and sports cars, intensifying competition for Tesla.

The China Merchants Bank International (CMBI) warned that the sales growth rate for electric and hybrid vehicles is expected to fall below 50% next year, forecasting an extremely competitive environment in the electric vehicle sector.

CMBI analyst Xi Ji said, "Tesla’s price cuts have increased the likelihood of a price war in the electric vehicle market," adding, "Other electric vehicle manufacturers are expected to follow with price reductions next year."