Why Tesla became over 40% cheaper in China than US?

Why Tesla became over 40% cheaper in China than US?
Why Tesla became over 40% cheaper in China than US?

Tesla cut electric car prices in China for the second time in less than three months on Friday, stoking expectations for a wider price war for battery-powered vehicles in the world’s largest auto market where demand has weakened. Tesla also cut prices on its best-selling Model Y and Model 3 electric vehicles in Japan, South Korea, and Australia.

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The coordinated price cuts were part of an effort to help stoke demand for Tesla’s output at its Shanghai factory, the company’s single largest production hub, according to a person with direct knowledge of the plan.

It was also the first major move by the electric vehicle maker since Tesla appointed its lead executive for China and Asia, Tom Zhu, who has been based in Shanghai, to oversee global output and deliveries.

The latest cut in China, along with a price cut in October and incentives extended to Chinese buyers over the past three months, mean a 13% to 24% reduction in Tesla’s prices from September in its second-largest market after the United States, according to Reuters calculations.

On Friday, Tesla slashed prices for all versions of its Model 3 and Model Y cars in China by between 6% to 13.5%, according to Reuters calculations based on the prices shown on its website. The starting price for Model 3, for instance, was cut to 229,900 yuan ($33,427) from 265,900 yuan. It cut prices in Japan on the same day.

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Grace Tao, Tesla’s vice president in charge of external communications in China, posted on her Weibo social media account on Friday that Tesla’s price cuts in China reflected engineering innovation and “answer the government’s call to promote economic development and encourage consumption.”

Deliveries of Tesla’s China-made cars hit their lowest in five months in December.

The cuts came just days after Beijing ended a subsidy program that helped build the world’s largest EV market. Softening demand has forced Tesla and its rivals to absorb the brunt of that decision.

China Merchants Bank International (CMBI), which warned in July that China’s EV sector was headed for a price war, said Tesla’s price reduction affirmed the prediction, adding that the U.S. firm may have to do more, especially as competition with its Chinese rivals intensifies.

The Model 3 and Y have been the only models Tesla delivers in China, though on Friday it announced prices for the Model S and Model X in the country.

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

“We expect new EV production capacity in China to outpace new demand in 2023 and Tesla Shanghai’s capacity utilization could drop to about or even below 80% this year if its Berlin plant ramps up.”

BYD, which has a much larger variety of offerings that comprise both plug-in and pure electric vehicles, saw its retail sales in China double in December while Tesla’s fell 42%, according to data from CMBI.

Tesla did not offer any additional comment when contacted by Reuters. A Tesla spokesperson referred Reuters to Tao’s Weibo post.

Tesla’s discounts have brought the starting price of Model 3 to the same level as BYD’s best-selling Han EV sedan, which is sold from 219,800 yuan. The Chinese EV maker recently raised the prices for its best-selling models after losing the central government subsidies.

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