Tesla cuts prices in key Asia markets as sales falter

SHANGHAI -- Tesla cut prices in China for the second time in less than three months on Friday, prompting forecasts of a wider price war amid weaker demand in the world's largest light-vehicle market.

The U.S. automaker also cut prices on its best-selling Model Y and Model 3 electric vehicles in Japan, South Korea and Australia in what a person with direct knowledge of the plan said was part of an effort to help stoke demand for output from its Shanghai factory, its single largest production hub.

Tesla shares fell in premarket trading after the first major move by Tesla since appointing its lead executive for China and Asia, Tom Zhu, to oversee global output and deliveries.

Automakers have long turned to incentives to control inventory, but, until late last year, Tesla had been able to keep prices steady or even raise them due to strong orders.

But last month CEO Elon Musk said "radical interest rate changes" have affected the affordability of all vehicles, new and used, and that Tesla could cut prices to sustain volume growth.

The latest cut in China, along with another in October and recent incentives for Chinese buyers, mean a 13 percent to 24 percent reduction in Tesla's prices from September in its second-largest market after the United States, Reuters calculations showed.

Tesla slashed prices for all Model 3 and Model Y EVs in China by between 6 percent to 13.5 percent, according to Reuters calculations based on the website prices. The starting price for the Model 3 was cut to 229,900 yuan ($33,427), from 265,900 yuan.

Grace Tao, Tesla's vice president in charge of external communications in China, said on Weibo that the price cuts in China reflected engineering innovation and answered Beijing's call to encourage economic development and consumption.

Deliveries of Tesla's China-made EVs hit their lowest in five months in December. Tesla's Shanghai plant, which was expanded last year, also exports vehicles to Europe.

So far, there has been no sign of Tesla cutting prices in Europe, where according to data from research group JATO Dynamics sales jumped 93 percent in November year-on-year and the Model Y was the top-selling car for the second time in 2022.

Tesla also saw its share of Europe's battery electric vehicle market jump to 18.9 percent in November, from 12.3 percent in the same month a year earlier.

The cuts in China came days after Beijing ended a subsidy program, with softening demand forcing Tesla and rivals to absorb the brunt of the move.

China Merchants Bank International said that Tesla may have to do more, especially as competition with Chinese rivals intensifies.

"Tesla needs to further cut prices and expand its sales network in China's lower-tier cities amid ageing models," said CMBI analyst Shi Ji.

"We expect new EV production capacity in China to outpace new demand in 2023."

But Sun Shaojun, a popular China auto blogger, said on Weibo that Tesla's price cuts were so large that other automakers, including larger rival BYD would have to respond.

BYD recently raised the prices for its best-selling models after the government's subsidies ended.

After the price cut, Tesla's Model 3 was the equivalent of about $1,000 more that BYD's Seal, a model launched in July. The Model 3 is now the same price as BYD's best-selling Han EV.

BYD declined to comment on competitors' pricing, but said it would adjust its own according to changes in market demand.

BYD, which sells both plug-in and pure electric vehicles, saw its retail sales in China double in December, while Tesla's fell 42 percent, according to data from CMBI.

Some Tesla owners in China who took delivery in recent months and did not qualify for the reduced prices said on Friday that they planned protests at the company's showrooms in Shenzhen and Henan, screenshots of social media chats seen by Reuters showed.

Tesla had no additional comment. A Tesla spokesperson referred Reuters to Tao's Weibo post.

China prices for the Model 3 and Model Y cars are now 24 percent to 32 percent lower than those in the United States, Tesla's largest market, Reuters calculations showed, reflecting a range of factors including material and labour costs.

Tesla also cut Model 3 and Model Y prices by about 10 percent each in Japan, the first time it had done so since 2021.

In the United States, the Model Y and Model 3 are eligible for up to $7,500 in clean vehicle tax credits as of this month under the Biden administration's Inflation Reduction Act, which became law in August.

In 2021, China accounted for just over a third of Tesla's overall sales.