January 31, 2023

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Tesla is cutting prices in China and other Asian markets as sales falter

SHANGHAI, Jan. 6 (Reuters) – Tesla (TSLA.O) China cut the prices of electric cars for the second time in less than three months on Friday, raising expectations of a broader price war for battery-powered cars in the world’s largest car market where demand has weakened.

Tesla also lowered the prices of its best-selling Model Y and Model 3 electric cars in Japan, South Korea and Australia.

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

It was also the first major move by the electric car maker since Tesla appointed its chief executive officer for China and Asia, Tom Zhu, who was based in Shanghai, to oversee production and global delivery.

Tesla shares fell 5.9 percent in pre-market trading, after cutting prices to $104.

Established automakers have long turned to incentives in the face of weak demand to control inventory, but until late last year Tesla managed to keep prices stable — or even drive them higher — due to a strong pipeline of orders from consumers.

Last month, Musk said that “dramatic changes in interest rates” affected the affordability of all cars, new and used, and that Tesla could lower prices to sustain volume growth.

The latest cut in China, combined with price cuts in October and incentives for Chinese buyers over the past three months, means a 13% to 24% drop in Tesla prices from September in its second-largest market after the United States, according to Reuters calculations.

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Tesla on Friday cut prices for all versions of its Model 3 and Model Y cars in China by between 6% and 13.5%, according to Reuters calculations based on prices displayed on its website. For example, the starting price of the Model 3 has been reduced to 229,900 yuan ($33,427) from 265,900 yuan.

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

Shipments of Tesla cars made in China hit a five-month low in December.

The cuts came just days after Beijing ended a subsidy program that helped build the world’s largest market for electric cars. Weak demand forced Tesla and its competitors to absorb the brunt of this decision.

China Merchants Bank International (CMBI), which warned in July that China’s electric vehicle sector was heading towards a price war, said Tesla’s price cut confirmed that expectation, adding that the US company may have to do more, especially as competition with intensifies. its Chinese competitors. .

“Tesla needs to further reduce prices and expand its sales network in lower-tier Chinese cities amid older models,” said Shi Jie, an analyst at CMBI.

“We expect new electric vehicle production capacity in China to exceed new demand in 2023, and Tesla’s Shanghai capacity utilization could drop to around or even less than 80% this year if its Berlin plant increases.”

Tesla’s Shanghai plant, which was expanded last year, also exports vehicles to Europe. There was no immediate sign of price cuts by the EV maker in those markets.

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But Sun Shaojun, a popular auto blogger in China, said on Weibo that Tesla’s price cuts were so big that other automakers, including Tesla’s biggest rival BYD (002594.SZ) You will have to respond in that market.

BYD recently raised the prices of its best-selling models after the government subsidy program ended at the end of the year.

After Friday’s price cut, Tesla’s Model 3 was about $1,000 more expensive than BYD’s Seal, a model launched in July. The Model 3 is now the same price as BYD’s best-selling Han EV.

BYD declined to comment on pricing by competitors but said it will adjust its prices according to changes in market demand.

BYD (002594.SZ)which sells both electric vehicles and plug-ins, saw retail sales in China double in December while Tesla fell 42%, according to data from CMBI.

Some owners of Tesla cars in China, who took delivery in recent months and were not eligible for the reduced prices, said on Friday they planned protests at the automaker’s Shenzhen and Henan showrooms, according to photos of social media conversations seen by Reuters.

Tesla did not make any further comment when contacted by Reuters. A Tesla spokesperson referred Reuters to Tao’s Weibo site.

Reuters calculations showed that car prices in China for the Model 3 and Y are now 24% to 32% lower than those in the US, Tesla’s largest market, reflecting a combination of factors including different material and labor costs.

Tesla also cut prices for the Model 3 and Model Y cars by about 10% each in Japan, the first time it has done so since 2021.

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In the United States, the Model Y and Model 3 are eligible for up to $7,500 in clean car tax credits starting this month under the terms of the Biden administration’s Inflation Reduction Act, which became law in August.

In 2021, China accounted for just over a third of Tesla’s total sales.

($1 = 6.8775 CNY)

($1 = 133.9200 yen)

(Reporting by Zhang Yan and Brenda Goh) Editing by Kim Coghill and Muralikumar Anantharaman

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