Tesla Reduces Model 3 and Model Y Prices in China Once Again

Tesla has reduced the prices of its locally manufactured models in China, paving the way for further reductions as the overall growth in the world’s largest electric vehicle market slows.

The starting price of the basic sedan Model 3 was reduced by 5.9% to 245,900 yuan ($34,300), according to the official website of the automaker. The starting price of the multi-purpose sports utility vehicle Model Y was reduced to 258,900 yuan from 266,400 yuan, representing a 2.8% decrease.

These moves may put pressure on Tesla’s competitors to lower their prices, as the American automaker initiated a long round of reductions in January 2023, which resulted in reduced profit margins across the industry.

Local manufacturers such as XPeng and BYD, as well as global automakers like Volkswagen, were forced to lower their prices to defend their positions in the market until 2023, with only a third of local automakers ultimately achieving their annual sales targets.

At the same time, the electric vehicle market in China is expected to slow down for the second year in 2024, as the country’s unstable economic recovery from the pandemic affects consumer morale.

The Chinese Passenger Car Association stated earlier this week that shipments of electric and hybrid vehicles to retailers are expected to increase by 25% to 11 million units this year, compared to 36% growth in 2023 and 96% growth in 2022. Paul Gong, an analyst at UBS Group, said earlier this year, “The gap between Chinese automakers and Tesla was unprecedentedly small,” pointing to “the pace at which Chinese automakers launched new models and focused on advanced technologies.”

The company relies solely on Model 3 and Model Y in sales, increasingly using price reductions to attract buyers. In 2023, Tesla delivered 1.81 million cars worldwide, with more than half of them shipped from its Shanghai factory.

Although it achieved its original goal of shipping 1.8 million cars, Tesla surpassed BYD as the largest seller of pure electric vehicles in the world in the fourth quarter, with BYD based in Shenzhen. Last year was marked by sharp price reductions as automakers competed to maintain their competitiveness.

The reduction peaked in May, when prices of nearly 900 car models were reduced by over 5% in the previous three months. While cancellations have somewhat declined since then, they are still higher compared to the previous two years.

State-owned automaker Chery reduced the prices of its electric cars by 8,000 yuan ($1,110) on December 29, saying it launched “the first shot for price reductions in 2024”.

Other companies quickly followed suit, including BYD, which offered a package of incentives worth no less than 18,000 yuan on its slow-moving ET7 sports sedan.

Tesla recently refreshed its six-year-old Model 3 and is preparing an updated Model Y at its Chinese factory, which may hit the market in mid-2024, according to Bloomberg News late last month. In comparison, XPeng, based in Guangzhou, launched five new models in 2023, including performance versions, and Li Auto, based in Beijing, plans to have a lineup of 11 models by 2025.

(bloomberg)