Tesla Reduces Prices in China and Other Asian Markets as Sales Fall

Tesla (TSLA.O) cut prices in China on Friday for the second time in less than three months. Thus, it triggered forecasts of a wider price war due to weak demand in the world's largest car market.

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Tesla may reduce prices to sustain volume growth

Tesla shares fell 4.5 percent in pre-market trading after Tesla's first major move since appointing China and Asia chief Tom Zhu to oversee global production and deliveries. Automakers have long relied on incentives to control inventory levels. But until late last year, Tesla managed to keep prices stable or even increase them after strong orders.

But last month, CEO Elon Musk said "radical interest rate changes" were hurting the affordability of all cars, new and used, and Tesla could cut prices to sustain volume growth. The latest cut in China, another reduction in October and the latest incentive for Chinese buyers mean a 13 percent to 24 percent drop in Tesla prices from September in its second-largest market after the United States.

According to the information obtained, Tesla has reduced all Model 3 and Model Y prices in China by 6 percent to 13.5 percent. The starting price of the Model 3 has been reduced from 265,900 yuan to 229,900 yuan (33,427 US dollars). Grace Tao, Tesla's vice president of external communications in China, said on Weibo that the price cuts in China reflect technological innovation, responding to Beijing's call to boost economic development and consumption.

In December, deliveries of Tesla's Chinese-made cars hit a five-month low. The Tesla factory in Shanghai, expanded last year, also exports vehicles to Europe. So far, there is no sign of Tesla cutting prices in Europe, where November sales were up 93 percent year-on-year and the Model Y is the best-selling car for the second time in 2022, according to the research group's sales data. Tesla also saw its share of the European battery electric vehicle (BEV) market rise to 18.9 percent in November from 12.3 percent in the same month last year.

Incentives End

The reductions came days after Beijing ended a subsidy program. Also, slowing demand has forced Tesla and its rivals to shoulder the brunt of the move. China Merchants Bank International (CMBI) said Tesla may need to do more, especially as competition from Chinese rivals increases. CMBI analyst Shi Ji,

But Sun Shaojun, a popular Chinese auto blogger, said on Weibo that Tesla's price cuts were so big that other automakers, including its larger rival BYD (002594.SZ), should react. BYD recently raised the prices of its best-selling models after government subsidies ended.

After the price cut, Tesla's Model 3 now costs about $1,000 more than BYD's Seal, which was launched in July. The Model 3 is now the same price as BYD's best-selling Han EV. BYD declined to comment on competitors' prices. But it said it would adjust its own price according to changes in market demand. BYD, which sells both plug-in and all-electric vehicles, doubled its retail sales in China in December, while Tesla's fell 42 percent, according to CMBI data.

Protests Planned

Some Tesla owners in China who have taken delivery in recent months and failed to take advantage of discounted prices said in screenshots of social media chats seen by Reuters that they were planning protests at their showrooms in Shenzhen and Henan on Friday. Tesla had no further comment. A Tesla spokeswoman referred Reuters to Tao's Weibo post.

According to the information, Model 3 and Model Y car prices in China are currently 24 percent to 32 percent lower than prices in the United States, Tesla's largest market, reflecting a number of factors, including material and labor costs. Tesla has also cut Model 3 and Model Y prices in Japan by about 10 percent for the first time since 2021.

In the United States, starting this month, the Model Y and Model 3 will be eligible for a clean vehicle tax credit of up to $7,500 under the Biden administration's Inflation Reduction Act, which took effect in August. In 2021, China accounted for just over a third of Tesla's total sales.

($1 = 6.8775 Chinese Yuan)

($1 = 133.9200 yen)