After selling a record number of Model 3s in June, Tesla’s sales of its lowest-priced sedan in China fell drastically last month.
According to the China Association of Automobile Manufacturers, Tesla’s deliveries of Model 3 sedans produced in Shanghai fell 26% in July. The EV maker sold 11,014 Model 3s last month compared to the 14,954 units delivered in June.
Overall, electric vehicle sales in China rose by 19.3%.
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While Tesla (NASDAQ:TSLA) led battery electric vehicle (BEV) sales in July, it was behind the Berkshire Hathaway (NYSE: BRK.A)-backed BYD Company in the broader category of new energy vehicles (NEVs).
BYD sold 14,000 units of NEVs (which comprises BEVs, fuel-cell, and plug-in vehicles). Berkshire Hathaway owns a 24.59% stake in BYD . The investing conglomerate purchased the stake over a decade ago.
Unlike Tesla, BYD only recorded a slight month-on-month decline in sales. In June, BYD sold 14,165 new energy vehicles , a decrease of 0.4%.
Going forward, Tesla’s lead in the Chinese BEV market is likely to come under threat from both competitive forces and geopolitical tensions.
Tesla may have a significant market share in China, but competitive pressure is growing rapidly. Both established players and startups are eager to bite a bigger chunk of the pie.
Last month, BYD started delivering Han EV, the Model 3 rival. It managed to sell 1,205 units and has so far garnered over 30,000 pre-orders.
XPeng Inc., the Alibaba-backed new energy carmaker, introduced its Model 3 rival, the Xpeng P7, a few weeks ago. The company sold 7,641 units in July, which was the first month since deliveries began.
The P7 beats the Model 3 range-wise based on the New European Driving Cycle (NEDC) tests. Under ideal conditions, the sedan reaches a maximum range of 416 miles on a single charge.
There is more competition on the horizon, too. NYSE-listed electric SUV maker Nio (NYSE:NIO) will release a crossover, the EC6, in September . This will give Nio a head start since Tesla has yet to ramp up Model Y production.
Additionally, Chinese EV makers are bolstering their finances. XPeng is now seeking to list in the U.S. Last month, another Chinese electric vehicle startup Li Auto Inc (NASDAQ: LI) achieved this feat.
As they turn to the markets for funding, Tesla should expect the Chinese EV scene to get increasingly competitive.
Ongoing Sino-U.S. tensions could result in China retaliating against American companies such as Tesla. Wall Street analysts have already sounded the alarm.
Besides possible retaliatory moves by the Chinese government, there is growing anti-American sentiment in the world’s second-largest economy.
Nationalistic fervor could make the Chinese favor domestic brands over foreign ones. This could turn to a disadvantage for Tesla and other U.S. businesses.