Tesla Cuts Prices in China Following Delivery Decline

Tesla Inc. saw its stock price drop by 2.90% in trading on the Hong Kong stock exchange. This comes as the electric carmaker faces increasing pressure to meet production targets for its new Model 3 sedan. Tesla has been struggling to ramp up production of the Model 3, which is seen as crucial to the company's long-term profitability.

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Tesla has made the steepest price cuts so far on its Model 3 and Model Y cars sold in China, after deliveries of its Shanghai-made cars plunged in December to cap a challenging year globally for the electric-vehicle maker.

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Tesla has announced price cuts for its two most popular electric car models made at its Shanghai gigafactory. According to the U.S. car maker, prices will be reduced by between 6% and 13%. With the latest discounts, the Model Y now starts at around $37,000, while the Model 3 starts at roughly $32,700. This represents a significant saving on the price of a standard Model 3, which is selling for more than 30% more on Tesla's U.S. website.

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Tesla announced that it has cut prices on its vehicles in China, citing engineering innovations and cost controls. The company said it is responding to the Chinese government’s calls to boost the economy and encourage consumption. After making several price cuts late last year and offering other short-term discounts, Tesla has decided to cut prices again in an effort to increase sales. However, these efforts have so far been unsuccessful, with data from the China Passenger Car Association showing that deliveries of Tesla's China-made cars fell by almost half in December from November, to just 55,800.

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The U.S. company delivered more than 710,000 China-made EVs in 2022, up 50% from a year earlier, accounting for more than half of its global total. However, its share of the world’s biggest EV market has been declining in the face of greater Chinese competition. Chinese rival BYD Co., whose cars are generally cheaper, delivered around 911,000 fully electric vehicles last year, almost three times that of 2021.

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Tesla's Shanghai plant experienced production disruptions this year due to Covid-19 outbreaks and upgrades to assembly lines. This led to dips in deliveries in April and July. Globally, Tesla fell short of its initial delivery targets for 2022, resulting in its worst annual stock performance. Some investors have blamed this on CEO Elon Musk's diversion of attention to Twitter Inc.

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Tesla's SEC filings show that China accounted for 24% of the company's global revenue for the first three quarters of 2022. Tesla has lowered prices on major models in Japan by nearly 10% Friday. Last month, the company doubled down on discounts on the same two car models in the U.S., offering a $7,500 credit and 10,000 miles of free Supercharging on its two most popular models through the end of 2022. After several price hikes during the first half of 2022, Tesla began reducing the price tags of its electric vehicles in China in October. In the latest price cuts, the long-range version of the Model Y saw the biggest reduction, of more than $7,000.

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Some car shoppers who were interested in Tesla held off on buying late last year in anticipation of further discounts after Tesla cut prices in October, said Kelvin Lau, an auto analyst at Daiwa Capital Markets. Lau said, “The discounts were frequent, so people might as well wait a bit longer.”
Tesla's lack of new model launches is a disadvantage for the company in China, where domestic brands are much more active in the EV space. This gives Chinese consumers more options to choose from, and makes it harder for Tesla to compete.

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The company is facing competition from lower-cost EVs from brands such as BYD and state-owned Chongqing Changan Automobile Co., and from higher-end brands such as Zhejiang Geely Holding Group’s ZEEKR, or startups NIO Inc. and Xpeng Inc.

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As state subsidies came to an end on December 31st, BYD was one of many Chinese and foreign EV brands that raised prices. BYD, whose sales of all-electric and plug-in vehicles have been soaring, announced last week that prices would increase by $300 to $900 for a vehicle starting this year. Although BYD's deliveries in December were slightly lower than November's, they more than doubled compared to the same period last year.

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Volkswagen AG's joint-ventures have increased prices for some of their EVs, while newcomer Xpeng has told customers that their prices will remain unchanged even though subsidies have ended.

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Tesla's recent social media announcement of new prices was not well-received by everyone. Dozens of people posted negative comments on Friday, with some owners saying they had recently paid a higher price.