Tesla slashes car prices in China for second time in three months

Tesla slashes car prices in China for second time in three months

SHANGHAI (Reuters) - Tesla (TSLA.O) cut car prices in China for the second time in less than three months on Friday, fuelling a price war amid a darkening demand outlook in the world s largest auto market.

The latest cut, along with a reduction in October as well as various incentives that amount to as much as 10,000 yuan extended to Chinese buyers over the past three months, mean a 13% to 24% reduction in Tesla s prices from September, according to Reuters calculations.

On Friday, the U.S. electric vehicles (EV) maker 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.

"Tesla s price adjustments are backed by innumerous engineering innovations," Grace Tao, Tesla s vice president in charge of external communications in China, posted on her Weibo social media account on Friday. "(They) answer the government s call to promote economic development and encourage consumption."

The price cuts come after December deliveries of Tesla s China-made cars hit their lowest in five months, and also just days after Beijing ended a subsidy programme 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 China.

"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 utilisation could drop to about or even below 80% this year if its Berlin plant ramps up."

BYD (002594.SZ), 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 spokesperson referred to Tao s Weibo post.

The car maker s discounts have brought the starting price of Model 3 to the same level of 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.

Sales of BYD s Han series, including the plug-in hybrid versions, were more than double that of Model 3 s in China in the first 11 months, according to the China Passenger Car Association.

The China prices of the Model 3 and Model Y cars are now 24% to 32% lower than those in the United States, Tesla s largest market, Reuters calculations showed, due to reasons including different material and labour costs.

Tesla also cut the prices of Model 3 and Model Y cars by about 10% each in Japan, the first time it had done so since 2021. The price for the Model 3 rear wheel drive version is now 5.369 million yen ($40,091), down from 5.964 million yen.