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

SHANGHAI, Jan. 6 (Reuters) – Tesla (TSLA.O) China cut its prices for the second time in less than three months on Friday, sparking expectations of a broader price war for electric cars in the world’s largest car market where demand has weakened.

Tesla also slashed prices for its Model Y and Model 3 vehicles, which are best sellers in Japan, South Korea and Australia in what a person with direct knowledge of the plan said was part of an effort to help boost demand for production from its Shanghai plant, which is the US automaker’s largest single production center. .

It was also Tesla’s first major move since hiring its chief executive for China and Asia, Tom Zhu, who was based in Shanghai, to oversee production and global delivery.

Tesla shares fell 4.5 percent in pre-market trading.

Automakers have long resorted to stimulus in the face of weak demand to control inventory, but until late last year, Tesla was able to keep prices stable — or even drive them up — due to a strong pipeline of orders.

Last month, Musk said that “dramatic changes in interest rates” affected the affordability of all cars, new and used, and that Tesla could lower prices to sustain volume growth.

Reuters calculations showed that the latest cut in China, combined with another in October and incentives for Chinese buyers over the past three months, meant a 13% to 24% drop in Tesla prices from September in its second largest market after the United States.

Tesla has cut prices for all versions of its Model 3 and Model Y cars in China by between 6% and 13.5%, according to Reuters calculations based on prices on its website. For example, the starting price of the Model 3 has been reduced to 229,900 yuan ($33,427) from 265,900 yuan.

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

Shipments of Tesla cars made in China hit a five-month low in December.

Reuters Graphics Reuters

end of subsidies

The cuts came days after Beijing ended the subsidy programme, with slumping demand forcing Tesla and its competitors to bear the brunt of the decision.

China Merchants Bank International (CMBI), which warned in July that China’s electric car sector was heading towards a price war, said Tesla may have to do more, especially as competition with Chinese rivals intensifies.

“Tesla needs to further reduce prices and expand its sales network in lower-tier Chinese cities amid older models,” said Shi Jie, an analyst at CMBI.

“We expect new electric vehicle production capacity in China to exceed new demand in 2023, and Tesla’s Shanghai capacity utilization could drop to around or even less than 80% this year if its Berlin plant increases.”

The Shanghai plant, which was expanded last year, also exports vehicles to Europe, though there was no immediate indication of price cuts there.

But Sun Shaojun, a popular auto blogger in China, said on Weibo that Tesla’s price cuts were so big that other automakers, including bigger rival BYD (002594.SZ) You must respond.

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

Cut in price, Tesla’s Model 3 was worth 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.

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

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

Planned protests

Footage of social media conversations seen by Reuters showed some owners of Tesla cars in China who had taken delivery in recent months and were not eligible for the reduced prices said on Friday they had planned protests at showrooms in Shenzhen and Henan.

Tesla has no further comment. A Tesla spokesperson referred Reuters to Tao’s Weibo site.

Reuters calculations showed that car prices in China for the Model 3 and Y are now 24% to 32% lower than those in the US, Tesla’s largest market, reflecting a combination of factors including material and labor costs.

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

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

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

($1 = 6.8775 CNY)

($1 = 133.9200 yen)

(Reporting by Zhang Yan and Brenda Goh) Editing by Kim Coghill, Muralikumar Anantharaman and Alexander Smith

Our standards: Thomson Reuters Trust Principles.

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