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Tesla’s Desperate Price Cuts in China Won’t Be Enough

Published October 1, 2020 3:17 PM
Mark Emem
Published October 1, 2020 3:17 PM
  • Tesla has once again reduced the prices of its made-in-China Model 3.
  • The price cuts come at a time of increasing competition in China.
  • Chinese EV manufacturers are growing in stature, and foreign automakers are boosting their investments.

The going is getting tougher for Tesla in China. Just five months after making substantial price cuts for the Model 3, the electric vehicle (EV) maker has lowered the starting prices for its cheapest sedan again.

According to Reuters, Tesla has dropped the prices  of China-made Model 3s by around 8%. The lowest-priced Model 3 will now start at about 249,900 yuan ($36,805) after subsidies.

Tesla has cut the price of the made-in-China Model 3 for the second time in five months. | Source: @Reuters/Twitter 

In May, Tesla had lowered the prices of the same sedan by 10% to help buyers qualify for subsidies. EV subsidies in China only apply to passenger vehicles priced below 300,000 yuan. The starting price for the sedan consequently fell to 271,550 yuan ($38,463).

Is Tesla’s Reign in China Coming to an End?

Tesla’s Model 3 price cuts come when the competition is getting stiffer in the world’s largest car market. Previously, Tesla barely had competition as most of the Chinese-made EVs were micro-cars aimed at entry-level buyers. That is changing, and now Tesla is being challenged on both price and features.

For instance, the P7 sedan manufactured by the NYSE-listed Xpeng beats Tesla cars on both price and range . The luxury sedan has a range of 438 miles and starts at approximately $33,000, making it at least $3,000 cheaper than the lowest-priced Model 3.

Local EVs in China are starting to outcompete Tesla on both price and technology. | Source: @NickdeCusa/Twitter 

The Han luxury sedan, which is made by the Warren Buffett-backed BYD Auto, has similar specs to the Model 3. It starts at $33,000, making it more affordable than Tesla’s cheapest car.

The Revenge of Legacy Automakers

Besides local Chinese EV manufacturers, the Europeans are looking to spoil Tesla’s party. German auto giant Volkswagen will be producing a wide variety of electric vehicles in China that compete with Tesla’s existing model lineup.

This includes the VW ID.4, which competes with the Model Y. Others include the VW ID.3 hatchback , the Audi e-tron, and the Porsche Taycan.

The German threat is not one Tesla can take lightly. Volkswagen enjoys strong brand recognition, having attained a 14.6% market share  in China last year. While that won’t necessarily translate to popularity in the EV space, Volkswagen’s Chinese infrastructure and market experience make it a formidable threat.

Additionally, Volkswagen is planning a model lineup that Tesla can’t compete with at the moment. Volkswagen also has longer manufacturing experience, enabling it to ramp up production quickly, a problem that still plagues Tesla.

Competitive Pricing Won’t Be Enough for Tesla

Other looming threats for Tesla include Mercedes-Benz maker Daimler, General Motors, Ford, and South Korea’s Hyundai–all of which have invested billions of dollars in EVs.

A sign of how things are likely to play out once the traditional carmakers go all-in has already been telegraphed.

Last month, a car produced by a joint venture between General Motors and its Chinese partners became the best-selling EV in August  in China.

GM has proven that Tesla’s market dominance in China is not guaranteed. | Source: @teamwheels88/Twitter 

To maintain its market share in China or even grow it, Tesla will need more than price cuts.

Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from CCN.com. Unless otherwise noted, the author has no position in any of the securities mentioned.