Tesla cuts prices in China and other Asian markets as demand concerns grow

The Model 3 and Model Y cars in Asia's biggest economy are now priced at least 24% lower than those in the US

A China-made Tesla Model Y vehicle at the company's showroom in Beijing. The latest price cuts in China mean a 13 per cent to 24 per cent reduction in Tesla's prices from September. Reuters

Tesla, the world's biggest electric vehicle manufacturer, cut prices in China for the second time in less than three months on Friday, fuelling forecasts of a wider price war amid weaker demand in the world's largest autos market.

The US car maker also cut prices on its best-selling Model Y and Model 3 electric vehicles in Japan, South Korea and Australia in what a source said was part of an effort to help stoke demand for output from its Shanghai factory, its single largest production hub.

The shift is the first major move by Tesla since appointing its lead executive for China and Asia, Tom Zhu, to oversee global output and deliveries that have been at the heart of the company's recent challenges after falling short of its 2022 delivery target.

Tesla shares closed up 2.5 per cent at $113.06 on Friday. However, the stock has lost 70 per cent of its value in the past year.

Car makers have long turned to incentives to control inventory, but, until late last year, Tesla had been able to keep prices steady or even raise them due to strong orders.

But last month chief executive Elon Musk said "radical interest rate changes" had affected the affordability of all cars, new and used, and that Tesla could cut prices to sustain volume growth.

The latest cut in China, along with another in October and recent incentives for Chinese buyers, mean a 13 per cent to 24 per cent reduction in Tesla's prices from September in its second-largest market after the US, Reuters calculations showed.

Tesla slashed prices for all its Model 3 and Model Y cars in China by between 6 per cent to 13.5 per cent, according to Reuters calculations based on the website prices. The starting price for the Model 3 was cut to 229,900 yuan ($33,427), from 265,900 yuan.

Those models are now priced 24 per cent to 32 per cent lower than those in the US, Tesla's largest market, Reuters calculations showed, reflecting several factors including material and labour costs.

Grace Tao, Tesla's vice president in charge of external communications in China, said on Weibo that the price cuts in China reflected engineering innovation and answered Beijing's call to encourage economic development and consumption.

Deliveries of Tesla's China-made cars hit their lowest in five months in December. Tesla's Shanghai plant, which was expanded last year, also exports vehicles to Europe.

So far, there has been no sign of Tesla cutting prices in Europe, where sales jumped 93 per cent in November year-on-year, according to sales data from research group Jato Dynamics, and the Model Y was the top-selling car for the second time in 2022.

Tesla also saw its share of Europe's battery electric vehicle market jump to 18.9 per cent in November, from 12.3 per cent in the same month a year earlier.

Subsidies end, protests planned

The cuts came days after Beijing ended a subsidy programme, with softening demand forcing Tesla and rivals to absorb the brunt of the move.

China Merchants Bank International said that Tesla may have to do more, especially as competition with Chinese rivals intensifies.

"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."

But Sun Shaojun, a popular China auto blogger, said on Weibo that Tesla's price cuts were so large that other car makers, including larger rival BYD would have to respond.

BYD recently raised the prices for its best-selling models after the government's subsidies ended.

After the price cut, Tesla's Model 3 was the equivalent of about $1,000 more that 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 competitors' pricing, but said it would adjust its own according to changes in market demand.

BYD, which sells both plug-in and pure electric vehicles, saw its retail sales in China double in December, while Tesla's fell 42 per cent, according to data from CMBI.

Some Tesla owners in China who took delivery in recent months and did not qualify for the reduced prices said on Friday that they planned protests at its showrooms in Shenzhen and Henan, screenshots of social media chats seen by Reuters showed.

Tesla had no additional comment. A Tesla representative referred Reuters to Ms Tao's Weibo post.

The company also cut Model 3 and Model Y prices by about 10 per cent each in Japan, the first time it had done so since 2021.

In the US, the Model Y and Model 3 are eligible for up to $7,500 in clean vehicle tax credits as of this month under the Biden administration's Inflation Reduction Act, which became law in August.

In 2021, China accounted for just over a third of Tesla's overall sales.