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

SHANGHAI, Jan. 6 (Reuters) – Tesla (TSLA.O) China cut prices for the second time in less than three months on Friday, raising expectations of a broader price war amid weak demand in the world’s largest auto market.

The US automaker also slashed prices of its best-selling Model Y and Model 3 electric cars in Japan, South Korea and Australia in what a person with direct knowledge of the plan said was part of an effort to help boost production demand from Shanghai. The factory, the largest production center in it.

The shift is Tesla’s first major move since hiring its chief executive for China and Asia, Tom Zhu, to oversee global production and deliveries that have been at the center of the company’s recent challenges after falling short of its 2022 delivery target.

Tesla shares closed up 2.5% at $113.06 on Friday. However, the stock has lost 70% of its value in the past year.

Automakers have long resorted to incentives to control inventory, but until late last year Tesla was able to keep prices stable or even raise them due to strong orders.

But CEO Elon Musk said last month that “dramatic changes in interest rates” affected the affordability of all cars, new and used, and that Tesla could lower prices to sustain volume growth.

Reuters calculations showed that the latest cut in China, combined with another in October and recent incentives for Chinese buyers, means a 13% to 24% drop in Tesla prices from September in its second largest market after the United States.

Tesla has slashed prices for all of its Model 3 and Model Y cars in China by between 6% and 13.5%, according to Reuters calculations based on the site’s pricing. The starting price of the Model 3 has been reduced to 229,900 yuan ($33,427) from 265,900 yuan. Reuters calculations showed that prices for these models are now 24% to 32% lower than those in the United States, Tesla’s largest market, reflecting several factors including material and labor costs.

Grace Tao, vice president of Tesla in charge of overseas communications in China, said on Weibo that China’s price cuts reflected engineering innovation and responded to Beijing’s call to encourage economic development and consumption.

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

So far, there has been no sign of a Tesla price cut in Europe, where sales jumped 93% in November year-over-year, according to sales data from research group JATO Dynamics, and the Model Y was the best-selling vehicle for the second time in 2022.

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

end of subsidies

The cuts came days after Beijing ended the subsidy programme, as slumping demand forced Tesla and its rivals to bear the brunt of the move.

China Merchants Bank International (CMBI) said Tesla may have to do more, especially as competition with Chinese rivals intensifies.

“Tesla needs to further reduce prices and expand its sales network in lower-tier Chinese cities amid older models,” said Shi Jie, an analyst at CMBI.

“We expect China’s new electric vehicle production capacity to exceed new demand in 2023.”

But Sun Shaojun, a popular auto blogger in China, said on Weibo that Tesla’s price cuts were so big that other automakers, including bigger rival BYD (002594.SZ) You must respond.

BYD recently raised the prices of its best-selling models after the government subsidy ended.

Cut in price, Tesla’s Model 3 was worth about $1,000 more than BYD’s Seal, a model 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 said it will adjust its prices according to changes in market demand.

BYD, which sells both electric and plug-in vehicles, saw retail sales in China double in December, while Tesla sales fell 42%, according to data from CMBI.

Planned protests

Footage of social media conversations seen by Reuters showed some owners of Tesla cars in China who had taken delivery in recent months and were not eligible for the reduced prices said on Friday they had planned protests at showrooms in Shenzhen and Henan.

Tesla has no further comment. A Tesla spokesperson referred Reuters to Tao’s Weibo site.

Tesla also cut prices for the Model 3 and Model Y by about 10% each in Japan, the first time it has done so since 2021.

In the United States, the Model Y and Model 3 are eligible for up to $7,500 in clean car tax credits starting this month under the Biden administration’s Inflation Reduction Act, which became law in August.

In 2021, China accounted for just over a third of Tesla’s total sales.

($1 = 6.8775 CNY)

($1 = 133.9200 yen)

(Reporting by Zhang Yan and Brenda Goh) Additional reporting by Nick Carey. drawings by Vincent Flassier; Editing by Kim Coghill, Muralikumar Anantharaman, Alexander Smith and Diane Craft

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