American automaker Tesla reportedly cuts its vehicle prices in China by as much as 9%, as per Reuters. The price reduction follows a tough third quarter in which the company’s revenues and deliveries fell short of analysts’ projections.
During the Q3 2022 earnings call, Tesla CEO Elon Musk responded to an analyst’s question if the company would need to cut prices to sustain demand:
“We believe that Tesla will continue to grow deliveries and revenue production at a 50% or greater compound annual growth rate. It might occasionally be a year that is a little less, and then some years would be maybe a little more or a lot more.”
Price adjustments in Tesla Model Y and Model 3
The price for the Model Y SUV has been lowered from 316,900 to 288,900 yuan. Meanwhile, the price of the Model 3sedan has dropped from 279,900 yuan to 265,900 yuan. While there were indications that demand was weakening in the biggest car market in the world, it bucked an industry-wide trend of growth.
It is worth noting that these price reductions are the first ones issued by Tesla in China since 2022. Notably, these numbers were published on Tesla’s China website on Monday.
Last week, CEO Musk told analysts that the current quarter’s demand was robust and that he anticipated Tesla to be “recession-resilient.”
Analysts warn of price war and inventory glut
According to China Merchants Bank International (CMBI), Tesla’s price cuts highlighted the “price war,” as industry-wide sales are expected to decrease in 2023.
“The price cuts underscore the possible price war which we have been emphasising since August,” said Shi Ji, an analyst with CMBI.
Based on the data released on Monday, September retail sales in China increased by 2.5%. Notably, it was less than half of August’s 5.4% growth and under the forecasted 3.3% increase.
China’s auto sales decelerated in September, whereas electric vehicle sales increased at their slowest rate in five months. That said, analysts are expressing concern over a rising automotive inventory surplus in the country.
Improved capacity utilization and supply chain stability’s effects on Tesla prices in China
The automaker claims that the stability of the supply chain influences the reduction in its vehicle prices despite the negative economic effects of China’s tough zero-COVID regulations. Another factor that is said to be affecting price adjustments is the improved capacity utilization at the Shanghai Gigafactory.
Earlier this year, Tesla reportedly upgraded its Gigafactory in Shanghai. It increased the factory’s weekly production capacity from about 17,000 units in June to over 22,000 units today.
Since the start of production in December 2019, the automaker achieved a production record for the Shanghai factory. In September, Tesla sold 83,135 electric vehicles built in China, an 8% increase over August.
CMBI warns of a decrease in China auto sales in 2023
Last week, CMBI analysts issued a warning that the electric vehicle sector would face more competition in 2023. Furthermore, the combined sales increase for EVs and hybrids is projected to fall below 50%, as per the analysts.
Tesla’s position in China’s auto industry
It is worth noting that Tesla is the third best-selling EV manufacturer in China. It trails behind BYD Motor and SAIC-GM-Wuling. Furthermore, the American automaker is the sole foreign competitor in the top 15 list compiled by the China Passenger Car Association.