On Monday, Tesla (TSLA.O) revealed that it would lower prices for its Model Y long-range and performance models in China starting on August 14, which could result in a drop in its stock due to concerns about further strain on profit margins.
Despite using other incentives to increase sales, Tesla has not made any reduction in its vehicle prices in China since January, despite increasing competition.
The decision was made following a 31% drop in Chinese-manufactured Tesla vehicles in July, their lowest monthly sales since December, when the company temporarily suspended some production for the revamped Model 3 launch. Meanwhile, BYD (002594.SZ) in China showed an increase in sales from June.
The two models had their starting prices lowered by 14,000 yuan ($1,935), while the Model Y Long Range’s price dropped by 4.5% to 299,900 yeran, and the model’S starting price has fallen by 3.8% to 349,800 shi.
Tesla announced that it would provide 8,000 yuan in insurance subsidies to Chinese consumers who purchase the first-generation Model 3 models with rear-wheel drive from August 14 to September 30.
In a research note, Chris McNally, an analyst with Evercore ISI, predicted that Tesla’s third-quarter margins could face about 100 basis points of sequential pressure due to similar price cuts in the U.S. and Europe.
A Tesla Model Y sport utility vehicle (SUV) made in China is displayed at the company’s showroom in Beijing, China on January 5, 2021, where people wearing face masks check it out.
In early trading, the company’s shares plummeted by 2.7% to a minimum of $236.15 in just over two months.
Despite having committed to avoid “abnormal pricing”, Tesla’s price cuts were made after receiving cash rebates from other Chinese companies, which some believed signaled a truce in the price wars that have threatened the industry’ profitability.
Elon Musk, the CEO of Tesla, stated that there was a chance for more price reductions to be implemented, even though they would reduce the company’s profit margins.
The “Project Highland” is expected to begin shipping in China with a refreshed Model 3 soon, and we are also expecting some price reductions for the outgoing model, according to analysts at Deutsche Bank.
Tesla has reduced prices multiple times in the U.S., China, and other markets since last year to protect itself from competition and economic uncertainty by offering additional incentives to reduce its inventory.
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The Shanghai newsroom and Liz Lee provided reporting, while Bengaluru correspondent Samrhitha Arunasalam and Akash Sriram contributed to the coverage and San Francisco correspondent Hyunjoo Jin acted as editors.
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