Tesla slashes model prices in China as electric vehicle price war accelerates

Tesla rolled out price cuts of its China models this week, accelerating a price war in the world’s largest EV market that is threatening to drive out weaker carmakers.

Tesla China slashed prices for all versions of its premium Model S and Model X by up to 6.9 per cent on Wednesday, with the starting prices reduced to Rmb754,900 ($103,467) and Rmb836,900, respectively. The price cuts followed markdowns of other models earlier in the week.

The move comes despite Tesla and 15 of its Chinese rivals signing a letter of commitment in July to compete fairly in the country’s car market and avoid “abnormal pricing”. However, the industry body retracted the commitment two days later, citing a violation of anti-monopoly laws.

China’s auto industry has been hit by slow economic growth and weak demand as officials struggle to boost confidence following years of harsh pandemic restrictions. Passenger vehicle sales declined for a second month in July, down 2.6 per cent from last year, data from the China Passenger Car Association showed.

The ruling Communist party politburo said in July that the economic recovery was making “tortuous progress” and said it would “actively expand domestic demand”.

Tesla’s domestic rivals announced similar discounts earlier this month to boost sales. On August 1, Leapmotor, state-owned Chery, and Volkswagen’s Chinese joint venture with state-owned SAIC, lowered prices on their electric models by up to Rmb55,000. China’s largest automaker BYD, SAIC-owned MG Motor and Great Wall Motor and other companies lowered prices later.

Tesla chief executive Elon Musk told analysts in July that there could be further price reductions this year, saying “it does make sense to sacrifice margins to make more vehicles”. China is an important market for Tesla, accounting for about one-third of its annual sales.

Chinese EV brands are resorting to increasingly more aggressive pricing strategies in both their existing portfolios and new product launches as competition for consumers increases. The intense competition may result in further consolidation for the country’s EV sector, said analysts.

“A new round of EV price cuts may be ahead and industry consolidation may continue,” Citi analyst Jeff Chung wrote in a report earlier this month.

“The pricing environment for the remainder of the third quarter might become more difficult,” said HSBC auto analysts in a recent note. “Part of the pricing tactic appears as low-season promotions or in conjunction with the destocking of old versions before models are refreshed.”