Tesla has begun taking orders for a cheaper version of the Model 3 in China. The electric car maker will now start selling the Model 3 Long-Range rear-wheel drive version marked at $64,400, Reuters reports.
This is significantly cheaper than the Model 3 Performance which was already available in China starting at $83,000. In the United States, the same car starts at about $63,000.
Import Duty Comprises a Big Chunk of the Cost of a Tesla in China
Part of the reason for the difference in price is the import duty imposed by China on cars manufactured abroad. After the U.S.-China trade war started, China raised tariffs on cars imported from the United States to 40%. Currently, the duty has been reduced temporarily to 15% as the outcome of the trade negotiations is awaited.
The move by Tesla is in line with the company’s plans as outlined at the beginning of the year. In early January, Tesla indicated in a statement that it would be looking to markets such as China for growth:
There remain significant opportunities to continue to grow Model 3 sales by expanding to international markets, introducing lower-priced variants and offering leasing. International deliveries in Europe and China will start in February 2019.
Biggest Car Market in the World
China is an important market for carmakers across the globe and not just Tesla. It is not only the largest electric vehicle market in the world but also for all other vehicles. Currently, 4% of all cars sold in China are electric. Over 22 million cars were sold in China last year, according to the China Passenger Car Association. This translates to nearly one million electric vehicles being sold in the country.
With seven million new energy vehicles expected to be sold in China in the next six years, Tesla has already announced plans to start manufacturing in the country to get a bigger piece of the pie. The electric car firm has already broken ground in a factory that will be located in Shanghai.
Initial production of the Model 3 is expected to begin later this year. Volume production will start in 2020. Tesla is reportedly looking for a new battery supplier in the meantime.
Producing in China Will Raise Tesla’s Competitiveness
Manufacturing in China is expected to make Tesla’s cars more competitive in the world’s most populous country.
During an earnings call earlier this week, Tesla CEO Elon Musk cited the high cost of its vehicles as one of the reasons why sales were low in China:
Our car is just very expensive going into China. We’ve got import duties, we’ve got transport costs, we’ve got higher costs of labor here. And we’ve never been eligible for any of the EV tax credits.