Elon Musk is slashing Tesla prices to whip up his sluggish sales in China’s key EV market

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Elon Musk slashed the price of his entry-level Tesla vehicles in China by as much as 9% to revive sluggish domestic demand last quarter.

The price of the standard rear-wheel drive version of the Model Y crossover has been reduced to just under ¥300,000 ($41,312), the threshold to qualify for a national electric vehicle purchase subsidy that removes the equivalent of an additional $1,500 from the vehicle. The ¥11,088 incentive will expire in early January (not to be confused with the recent extension of a tax relief).

The combination of falling prices along with the certainty about the subsidy running out should now provide a boost to Chinese consumers who have put off purchases until they are certain. Speculation about the two had been rife in recent weeks.

The move comes as Musk looks to deliver on his promise of an “epic year-end” in which the company hopes to grow volumes by about 50% and drive the share price to achieve a $4.5 market cap. trillions, more than the combined value. of the two most valuable companies today (Apple and Saudi Aramco). This week is a crucial one for Tesla, as the businessman is expected to sell billions of dollars worth of stock this week to fund his $44 billion Twitter deal ahead of an October 28 court deadline.

Tesla is expanding production in China while serving more and more European customers from its new German plant instead of its Shanghai factory. If local Chinese demand declines, the company risks being stuck with fixed costs of unproductive labor and machinery weighing on its bottom line.

Tesla may be the dominant electric vehicle brand in the US by a wide margin, but the situation in China is completely different. It faces a number of competitive national rivals, most notably Warren Buffett-backed Build Your Dreams.

BYD, China’s largest electric vehicle maker, earlier this month predicted its third-quarter net profit. more than quadrupled as it extended its sales lead over Tesla.

By comparison, demand for Teslas in the country has been slower recently.

Currently the standard range of Model Y has a lead time of only 1-4 weeks instead of several months, depending on the company’s website configurator. Since it takes some time to process an order and build a car, this means that there is currently enough capacity to meet the expected demand in China without breaking the bank.

This may change soon now that the crossover’s price has dropped to ¥288,900 (¥299,988 excluding subsidy) from ¥316,900 previously.

Tesla does not offer a standard-range Model Y in the US market, as Americans would not accept a vehicle that can only drive the equivalent of 267 miles on the European WLTP test cycle. However, Germany does, and the price of the same vehicle imported from China is €53,990 ($53,000), although a large part of the premium is due to the 19% value-added tax and import duties. from the country.

By comparison, China’s rear-wheel-drive Model 3 sedan, which shares many of the Model Y’s parts, had longer wait times of four to eight weeks as it already qualified for the subsidy. However, Tesla reduced the price of its entry model to 265,900 yen from the previous 279,900 yen, including the subsidy.

Other more powerful versions also saw price cuts.

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