Tesla cuts prices in China by up to 9% as softer demand, price war loom By Reuters

© Reuters. FILE PHOTO: A man wearing a face mask following the coronavirus disease (COVID-19) outbreak walks by Tesla Model 3 sedans and Tesla Model X sport utility vehicle at a new Tesla showroom in Shanghai, China May 8, 2020. REUTERS/Yilei Sun/File Photo/File Pho

SHANGHAI (Reuters) -Tesla has slashed starter prices for its Model 3 and Model Y cars by as much as 9% 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 (NASDAQ:) 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% in September, below the expected 3.3% rise and less than half August’s 5.4% 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 U.S. 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% increase from August, and set an output record for the Shanghai factory since production began in December 2019.

But China Merchants Bank International (CMBI) analysts warned last week 2023 would bring more competition to the EV sector, saying that it expected to see sales growth for EVs and hybrids on a combined basis to drop below 50%.

“The price cuts underscore the possible price war which we have been emphasising since August,” said Shi Ji, an analyst with CMBI.

“It is expected given Tesla’s capacity expansion in 3Q22 and we expect other new energy vehicle (NEV) makers to follow suit, as China’s NEV capacity is to increase significantly next year.”

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