Tesla cuts prices in China following signs of softening demand

Tesla Inc. lowered prices across its lineup in China, looking to stoke demand in a market where competitive and economic pressures are intensifying.

The carmaker cut the cost of the cheapest locally built Model 3 sedan by 5% to 265,900 yuan ($36,774), Tesla’s website showed Monday. The company dropped the starting price of the Model Y SUV by 8.8% to 288,900 yuan.

The changes reflect the tougher time Tesla and its international peers are having going up against local manufacturers led by BYD Co., which sold a record 200,973 vehicles last month, and upstarts including Nio Inc. and Xpeng Inc., which are expanding their lineups. Domestic automakers accounted for almost 80% of electric-vehicle sales through the first seven months of the year, according to China’s Passenger Car Association.

Chief Executive Officer Elon Musk also flagged last week that demand has been “a little harder” to come by due to China’s property market slowdown and Europe’s energy crisis. He said during Tesla’s earnings call that while prices of some commodities have eased, inputs for EVs including battery-grade lithium are still “crazy expensive.”

Tesla shares slumped as much as 4.1% before the start of regular trading and were down 2.3% to $209.43 shortly after 8 a.m. New York time. The stock has declined 39% this year.

The price changes partly reverse several rounds of hikes Tesla put into effect earlier this year, after Musk flagged rising costs for raw materials and logistics. The company is now looking to goose sales in a market from which it derives almost a quarter of revenue, which fell short of estimates last quarter.

“EV competition this year is very fierce, and Tesla’s performance may not match its expectations,” said Yale Zhang, managing director at Shanghai-based consultancy Autoforesight Co. “Hence, it decided to hit its rivals with a direct blow by cutting prices to further boost sales in the last two months of the year.”

Tesla delivered a record 83,135 cars in China last month, including 5,522 for export, after upgrading production capacity at the Shanghai factory. The plant can now produce about 1 million cars a year.

A representative for Tesla China said that improved utilization of the company’s Shanghai factory and “relative stability” of the supply chain have contributed to lower costs, and that it’s always priced its vehicles based on costs.

Delivery times in China have shortened to just one to four weeks for the Model Ys, and four to eight weeks for the Model 3, according to the company’s website. Lead times were as long as 22 weeks earlier this year, AllianceBernstein analysts wrote in a report last week.

“It is an expected price cut,” said Wang Hanyang, an automotive analyst at Shanghai-based 86Research Ltd. “Order inflow for Model 3s and Ys haven’t fulfilled the expanded production capacity, as you can tell from the shortened wait time. The company needs to secure more orders by cutting prices.” – BLOOMBERG