Tesla cuts prices in China by up to 9 per cent as softer demand, price war loom

Tesla has slashed starter prices for its Model 3 and Model Y cars by as much as 9 per cent in China, reversing a trend of increases across the industry amid signs of softening demand in the world’s largest auto market as analysts warn of a price war.

The price cuts, posted in listings on the electric vehicle (EV) giant’s China website on Monday, are the first by Tesla in China in 2022, and come after Tesla began offering insurance incentives to buyers last month.

The move to reduce some prices by nearly a tenth comes after Tesla Chief Executive Elon Musk said last week that “a recession of sorts” in China and Europe was weighing on demand for its electric cars.

Data on Monday showed retail sales in the world’s no. 2 economy grew 2.5 per cent in September, below the expected 3.3 per cent rise and less than half August’s 5.4 per cent growth. Analysts are warning of growing inventory glut in China, where auto sales growth slowed in September while EV sales rose at their slowest pace in five months.

The US automaker and several Chinese rivals have hiked prices several times since last year amid rising raw material costs. But Tesla has also regularly adjusted prices of its cars in China, including reductions, reflecting government subsidies.

Tesla told Reuters it was adjusting prices in line with costs. Capacity utilisation at its Shanghai Gigafactory has improved, while the supply chain remains stable despite the impact on the economy of China’s stringent zero-Covid restrictions, leading to lower costs, it said.

The starting price for the Model 3 sedan was reduced to 265,900 yuan ($36,727) from 279,900 yuan, while that for the Model Y sport utility vehicle was cut to 288,900 yuan from 316,900 yuan, the product prices listed on its Chinese website showed.

Tesla upgraded its Shanghai factory earlier this year in a development that brought the factory’s weekly output capacity to around 22,000 units compared with levels of around 17,000 in June, Reuters previously reported.

Tesla delivered 83,135 China-made EVs in September, an 8 per cent increase from August, and set an output record for the Shanghai factory since production began in December 2019.