Tesla Lowers Prices in Response to Softening Demand in China

Tesla has announced a reduction in prices in China, its second in three months, which has led analysts to predict a wider price war as demand for electric vehicles weakens in the world’s largest car market. The American automaker has also reduced prices on its Model Y and Model 3 electric vehicles in Japan, South Korea, and Australia. This move has been seen as an attempt to stimulate demand for output from its Shanghai factory, its largest production hub.

The decision comes as Tesla faces challenges with its global output and deliveries, which have fallen short of its 2022 delivery target. The price cuts in China, in addition to another in October and recent incentives for Chinese buyers, have resulted in a 13% to 24% reduction in Tesla’s prices from September in its second-largest market after the US, according to Reuters calculations. The reductions have been applied to all Model 3 and Model Y cars in China, with the starting price for the Model 3 being reduced to CNY 229,900 ($33,427) from CNY 265,900 ($38,661). Grace Tao, Tesla’s vice president in charge of external communications in China, said on Weibo that the price cuts reflected engineering innovation and answered Beijing’s call to encourage economic development and consumption. Deliveries of Tesla’s China-made cars reached their lowest number in five months in December. The Shanghai plant, which was expanded last year, also exports vehicles to Europe, where sales increased 93% year-on-year in November, according to the research group JATO Dynamics. In 2022, the Model Y was the top-selling car for the second time.

The price cuts were implemented shortly after Beijing ended its subsidy programme, which has led to Tesla and its competitors having to absorb the impact of the move due to softening demand. China Merchants Bank International (CMBI) has predicted that Tesla may have to take further action, particularly as competition with its Chinese rivals intensifies. CMBI analyst Shi Ji said, Tesla needs to further cut prices and expand its sales network in China’s lower-tier cities amid ageing models.

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