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

SHANGHAI, Jan 6 (Reuters) – Tesla (TSLA.O) China cut prices for the second time in three months on Friday, prompting forecasts of a wider price war amid weak demand in the world’s biggest auto market.

The U.S. automaker has cut the price of its top-selling Model Y and Model 3 electric vehicles in Japan, South Korea and Australia, a person with direct knowledge of the plan said, as part of an effort to stimulate demand for its Shanghai plant. Factory, its largest production center.

It’s Tesla’s first major move since hiring Tom Zhu, its top executive for China and Asia, to oversee global rollout and deliveries, which have been at the heart of the company’s latest challenges after falling short of its 2022 delivery target.

Tesla shares fell 2.5% in active trading on Friday. The stock has lost 70% in the past year.

Automakers have long turned to incentives to control inventory, but until late last year, Tesla was able to hold prices steady or raise them due to strong orders.

But CEO Elon Musk said last month that “severe interest rate swings” have affected the affordability of both new and used cars, and that Tesla could cut prices to keep up with volume growth.

The latest cut in China, another in October and the latest incentive for Chinese buyers, cut Tesla’s prices by 13% to 24% since September in its second-largest market after the United States, Reuters calculations show.

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

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Grace Tao, Tesla’s vice president in charge of China’s external communications, said on Weibo that the price cut in China reflects engineering innovation and responds to Beijing’s call to encourage economic growth and consumption.

Deliveries of Tesla’s China-made cars fell to a five-month low in December. Tesla’s Shanghai plant, which was expanded last year, also exports vehicles to Europe.

So far, there is no sign of Tesla lowering prices in Europe, where sales rose 93% year-on-year in November, with the Model Y being the best-selling car, according to sales data from research group JATO Dynamics. The second time is in 2022.

Tesla saw its share of Europe’s battery electric vehicle (BEV) market rise to 18.9% in November, up from 12.3% in the same month a year earlier.

Reuters Graphics Reuters Graphics

End of grants

The cuts came days after Beijing ended a subsidy program, softening the need for Tesla and rivals to absorb the burden of the move.

China Merchants Bank International (CMPI) says Tesla may need to do more, especially as competition from Chinese rivals intensifies.

“Tesla still needs to lower prices and expand its sales network in China’s lower-tier cities,” CMBI analyst Shi Ji said.

“We expect new EV production capacity in China to exceed new demand by 2023.”

But popular Chinese auto blogger Sun Shaojun wrote on Weibo that Tesla’s price cuts were so big that other automakers, including big rival BYD, (002594.SZ) to answer.

BYD recently hiked prices for its best-selling models after government subsidies ended.

After the price cut, Tesla’s Model 3 costs about $1,000 more than BYD’s Seal, which 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’ pricing, but said it adjusts its own to changes in market demand.

BYD, which sells plug-in and pure electric vehicles, doubled its retail sales in China in December, while Tesla’s sales fell 42%, according to CMPI data.

Protests are planned

Some Tesla owners in China who have taken delivery in recent months and do not qualify for reduced prices said on Friday they planned to hold protests at showrooms in Shenzhen and Henan, according to screenshots of social media chats seen by Reuters.

Tesla had no further comment. A Tesla spokesman referred Reuters to Tao’s Weibo post.

Prices in China for Model 3 and Model Y cars are now 24% to 32% lower than in the U.S., Tesla’s largest market, Reuters estimates, reflecting a number of factors including material and labor costs.

Tesla cut Model 3 and Model Y prices by 10% each in Japan, the first time since 2021.

In the United States, the Model Y and Model 3 are eligible for up to $7,500 in clean vehicle tax credits as of this month under the Biden administration’s inflation-reduction law, which became law in August.

By 2021, China alone will account for a third of Tesla’s overall sales.

($1 = 6.8775 Chinese Yuan)

($1 = 133.9200 yen)

Reporting by Zhang Yan and Brenda Ko; Additional reporting by Nick Carey; Graphics by Vincent Flasseur; Editing by Kim Coghill, Muralikumar Anantharaman, Alexander Smith and Diane Croft

Our Standards: Thomson Reuters Trust Principles.

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