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Tesla Stirs Price War Concerns with New Reductions in China

BusinessTesla Stirs Price War Concerns with New Reductions in China

Tesla, the leading electric carmaker, is stoking concerns over a potential price war in China, the world’s most significant auto market, after announcing its second series of price cuts this week. This strategic move to adjust its pricing model might influence other prominent automobile manufacturers to reconsider their pricing strategies in the competitive landscape.

On its official WeChat account, Tesla confirmed that the costs for their Model S sedans and Model X sport utility vehicles in inventory had been slashed by up to 70,000 yuan (US$9,600). Post the reduction, the new prices stand at 754,900 yuan for the Model S and 836,000 yuan for the Model X SUV. Notably, this announcement came in quick succession to another pricing decision by Tesla. Just two days prior, the company reduced the prices of the Long Range and Performance variants of the Model Y SUV by 14,000 yuan. Concurrently, an insurance subsidy was extended for the base version of the Model 3 sedan. This particular incentive is now expected to remain active until the conclusion of the upcoming month.

The repercussions of Tesla’s aggressive pricing adjustments might echo beyond its immediate consumer base. Other luxury carmakers in the market, such as BMW and Mercedes-Benz Group, might feel the heat and be compelled to reevaluate their pricing in the face of stiff competition. As part of Tesla’s broader marketing strategy in China, other perks such as free fast-charging credits and trials for Tesla’s enhanced Autopilot system for those referring new customers are still available.

The financial markets have, however, exhibited a somewhat lukewarm response to Tesla’s decisions. Tesla shares witnessed a dip of 1.3% at the onset of premarket trading on the day the announcement was made. Since CEO Elon Musk mentioned the possibility of more price reductions during Tesla’s earnings call on July 19, the company’s stock value has depreciated by 20%. In July, Tesla’s shipments from its China-based plant saw a 31% downturn, marking the lowest shipment level for the year. Furthermore, in a recent announcement, Tesla revealed a prospective decline in global production for the third quarter due to scheduled factory upgrades. However, the company did not provide detailed figures. A new version of the Model 3 sedan is anticipated to roll out soon.

Elon Musk hinted that Tesla’s price reductions might be inevitable if interest rates persist in their upward trajectory. The frequent price modifications have started to impact Tesla’s bottom line, as evidenced by the decline in the company’s automotive gross profit margin. This key performance metric plummeted to a four-year nadir in the recently concluded second quarter.


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