Tesla Slashes Prices In China By Up To 9%

Photo credit: Jakob Härter/Flickr
Photo credit: Jakob Härter/Flickr

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Elon Musk is not a diplomat, but he plays one on Twitter. He’s strived to keep relations with Beijing as peachy as possible, publicly praising the country’s work culture and even suggesting it should be granted a degree of control over Taiwan, a nation Xi Jinping looks ever more likely to invade.

But ultimately US-China relations aren’t a knot Tesla can untie alone, so Musk is taking a different tack in the Middle Kingdom: he’s starting a price war.

Tesla announced price cuts on Monday for its Model 3 and Model Y in China of up to 9%. The company said the move was in line with falling costs, but Wall Street interpreted the decision as the beginning of a price war. Clearly, Musk is no stranger to Sun Tzu’s playbook.

Tesla And The CCP

Tesla’s relationship with China seems to be in a permanent state of it’s complicated. China is both a hugely important consumer market for Tesla and the home of its Shanghai Gigafactory, which last year produced 50% of Tesla’s vehicles. China’s government has not always made life easy for Tesla. The CCP says Teslas could be conduits for US spying, as they come equipped with various cameras and sensors, and it has banned them from various locations including military bases and a seaside resort town famous for hosting China’s political elite.

Now Tesla has to fight for a place at the table among a growing number of domestic companies. The price cut marks a reversal:

  • The price of Teslas has been steadily creeping up in China and elsewhere since 2021 — between March 2021 and 2022 the price of its cheapest car rose by $10,000 and in June it raised prices again by as much as $6,000. Musk said the price hikes were driven by inflationary pressure on logistics and raw materials that impacted the auto industry as a whole.
  • Tesla’s China price cut wasn’t well-received by investors, causing its share price to drop 1.5% on Monday. Wedbush analyst Dan Ives told The Daily Upside the move added to pre-existing concerns that Tesla is seeing cracks in demand, further fueling the narrative that Tesla is competing for market share in the People’s Republic.

China’s Economic Woes: Despite beating analysts’ predictions, the country still fell well short of its official targets for Q3 of this year and is on track to have the slowest annual growth it’s seen since the 1980s. This news came right after Xi secured a third term as leader of the country and packed the committee with loyalists — prompting the Hong Kong stock exchange to have its worst day since 2008. With the yuan at a 14-year low, investors might start to worry how many Chinese drivers will want to shell out for a status symbol.