Tesla cuts China prices by up to 9% as analysts warn of 'price war'

[October 24, 2022]  SHANGHAI (Reuters) -Tesla has cut starter prices for its Model 3 and Model Y cars by as much as 9% in China, reversing a trend of increases across the industry amid signs of softening demand in the world's largest auto market.

The price cuts, posted in listings on the electric vehicle (EV) giant's China website on Monday, are the first by Tesla in China in 2022, and come after Tesla began offering limited incentives to buyers who opted for its insurance last month.

Shares of the Austin, Texas-based firm were down 3.3% at $207.36 in trading before the bell.

The price cuts also follows Tesla Chief Executive Elon Musk's comment last week that "a recession of sorts" was under way in China and Europe, and Tesla said it would miss its vehicle delivery target this year.

Musk told analysts last week that demand was strong in the current quarter and that he expected Tesla to be "recession-resilient".

China Merchants Bank International (CMBI) said Tesla's price cuts underlined the growing competitive risk for EV makers in China, with industry-wide sales projected to slow into 2023.

"The price cuts underscore the possible price war which we have been emphasising since August," said Shi Ji, an analyst with CMBI.
 

CMBI analysts warned last week that 2023 would bring more competition to the EV sector, saying it expected to see sales growth for EVs and hybrids on a combined basis to drop below 50%.

Tesla had cut prices in China last year in an effort to be more competitive in the country, while in the United States, its largest market, the EV maker has raised prices over the past year on higher cost of raw materials.

Visitors wearing face masks check a China-made Tesla Model Y sport utility vehicle (SUV) at the electric vehicle maker's showroom in Beijing, China January 5, 2021. REUTERS/Tingshu Wang/File Photo

Data on Monday showed retail sales in China grew 2.5% in September, below the expected 3.3% rise and less than half of August's 5.4% growth.

The U.S. automaker and several Chinese rivals have hiked prices several times since last year amid rising raw material costs. But Tesla has regularly adjusted prices of its cars in China, including reductions, reflecting government subsidies.

Tesla told Reuters it was adjusting prices in line with costs. Capacity utilisation at its Shanghai Gigafactory has improved, while the supply chain remains stable despite the impact on the economy of China's stringent zero-COVID restrictions, leading to lower costs, it said.

The starting price for the Model 3 sedan was reduced to 265,900 yuan ($36,727) from 279,900 yuan, while that for the Model Y sport utility vehicle was cut to 288,900 yuan from 316,900 yuan, the product prices listed on its Chinese website showed.

Tesla upgraded its Shanghai factory earlier this year, after which it delivered 83,135 China-made EVs in September, setting an output record for the plant since production began in December 2019.

Tesla is now China's third best-selling EV maker after BYD Motor and SAIC-GM-Wuling, and is the only foreign player in the top 15 list published by the China Passenger Car Association.

($1 = 7.2399 Chinese yuan)

(Reporting by Zhang Yang and Brenda Goh in Beijing and Akash Sriram in Bengaluru; Editing by Kenneth Maxwell and Arun Koyyur)

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