Tesla Reduces Prices in China Amidst Slowdown in World’s Largest Electric Vehicle (EV) Market

Tesla Inc. has reduced the prices of its locally manufactured models in China. This signals a trend of further discounts amid a slowdown in the growth of the world’s largest electric car market.

The starting price of the basic Model 3 sedan has been slashed by 5.9% to 245,900 yuan ($34,300). This was indicated on the automaker’s official website. The Model Y sport utility vehicle now starts at 258,900 yuan, down from 266,400 yuan, reflecting a 2.8% reduction.

Impact on Competitors: Pressure to Follow Suit

These price adjustments may compel Tesla’s rivals to follow suit, increasing competitive pressure. In January 2023, the US automaker initially triggered a widespread wave of discounting, impacting profit margins across the industry.

Local manufacturers like Xpeng Inc., BYD Co., and global automakers such as Volkswagen AG had to lower prices to safeguard their market positions in 2023. However, only a third of local carmakers met their annual sales targets.

Meanwhile, China’s electric car market is expected to witness a second consecutive year of slowing growth in 2024. The nation’s uneven economic recovery from the pandemic influenced this. This further dampened consumer sentiment.

The China Passenger Car Association forecasts a 25% increase in shipments of battery-electric and plug-in hybrid vehicles to dealers, totaling 11 million units in 2024. This contrasts with the 36% growth in 2023 and the remarkable 96% pace in 2022.

UBS Group AG analyst Paul Gong emphasized the narrowing gap between Chinese automakers and Tesla highlighting Chinese manufacturers’ rapid introduction of new models and advanced technologies. In contrast, Tesla, heavily relying on the Model 3 and Model Y for sales, has increasingly turned to price cuts to attract buyers.

Tesla’s Global Shipments and BYD’s Overtaking

Tesla achieved its original goal of shipping 1.8 million cars globally in 2023, with over half produced at its Shanghai factory. However, Shenzhen-based BYD surpassed it as the world’s leading seller of pure electric vehicles in the fourth quarter.

The automotive industry witnessed significant price reductions throughout the past year as manufacturers vied for competitiveness. While the intensity of discounting has somewhat diminished since the peak in May prices remain elevated compared to the preceding two years.

Chery Automobile Co., a state-owned manufacturer, initiated price cuts by reducing the price of its EVs by 8,000 yuan ($1,110) on December 29. The firm described it as the “first shot” of price reductions for 2024. Other manufacturers quickly followed suit, with BYD offering incentives worth at least 18,000 yuan on its slow-moving Frigate 07 SUV.

In September, Tesla revamped the six-year-old Model 3, and a refreshed Model Y is in preparation at its China factory, expected to hit the market as early as mid-2024. 

In comparison, Xpeng, based in Guangzhou, launched five new models in 2023 including upgraded versions, while Beijing-based Li Auto Inc. plans to have a lineup of 11 models by 2025.

Tesla’s Production Suspension in Germany

In other developments, Tesla announced a two-week suspension of most production at its factory in Germany. The firm cited a parts shortage due to shipping delays from Huthi rebel attacks in the Red Sea. 

The suspension was disclosed shortly before the United States and Britain announced air strikes against the Iran-backed rebels over their repeated threats to vessels in the key waterway on January 12. Tesla stated that the Red Sea attacks led to delays, creating a “gap in the supply chains,”. This resulted in suspending production at the facility southeast of Berlin, with only a few sectors exempted from the pause.