Visitors admire a Tesla Model 3 car alongside a Model Y on display at a Tesla showroom in Beijing, China on February 4, 2023.
Florence Lo | Reuters
Tesla has announced a significant price reduction for its existing inventory of Model S and Model X cars in China, aiming to boost sales in the face of increased competition in this crucial market.
According to a post on Chinese microblogging service Weibo, Tesla has lowered the price of the Model X from 898,900 yuan to 836,900 yuan ($114,677), while the Model S is now offered at 754,900 yuan, down from 808,900 yuan.
This is the latest round of price cuts by Tesla in China, following recent reductions in prices for the Model Y and Model 3.
In the United States, Tesla has introduced more affordable versions of the Model S and Model X vehicles, which are software-limited in terms of range.
Tesla’s primary focus remains on expanding its market share and increasing car sales, even if it means sacrificing profit margins. In its most recent quarterly earnings report, Tesla recorded an operating margin of 9.6%, the lowest in at least the past five quarters.
Investors are concerned about these ongoing discounts and fear that they may have a detrimental effect on Tesla’s margins.
Following a 3% decline in shares on Tuesday, Tesla’s stock was down in morning trading on Wednesday.
The reduced prices offered by Tesla have raised concerns about a potential price war in the Chinese market, which could negatively impact smaller competitors. Stocks of Chinese electric vehicle startups Xpeng, Nio, and Li Auto all dropped in morning trading in the U.S.
The decrease in prices comes at a time when the Chinese economy is struggling to regain stability after the easing of strict Covid-19 restrictions, and consumers remain cautious about spending.
Michael Dunne, CEO of auto consulting firm ZoZoGo, noted that Tesla is evidently convinced that “the best way to succeed in today’s Chinese market with weaker demand is through sustained aggressive price cuts.” He added that this strategy could place immense pressure on its competitors in the market, as they will have no choice but to match Tesla’s price reductions, further straining their bottom line.
“The Chinese have no choice but to meet price cuts with their own, putting further pressure on their bottom line. BYD margins are now razor thin. NIO, Li Auto, and Xpeng are bleeding out, holding on,” Dunne stated.
In July, Tesla sold 64,285 electric vehicles manufactured in China, representing a 31% decrease compared to the previous month, according to the China Passenger Car Association.
— Lora Kolodny contributed reporting.
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