SHANGHAI -- Slashed prices have given Tesla's China sales a pop, but analysts, and even fans, warn the U.S. automaker needs to up its long-term game to avoid choking on the dust of fast-moving rivals in the world's biggest electric vehicle market.
Most immediately, Tesla's January price cuts drove deliveries of its China-made vehicles up 18 percent from December. Tesla's thick profit margins have put it in a position to take a price war to competitors in China and beyond, analysts say.
But they say Tesla has lagged competitors in China in introducing new models, improving navigation systems and adding luxurious interior touches or white-glove customer service to serve the developing range of consumer preferences for EVs.
"Tesla's facing a serious problem of a very limited product mix," said Cui Dongshu, secretary general of China Passenger Car Association. "Its slowness to respond to Chinese consumers' preferences has led to a very passive positioning for Tesla to rely on few means such as price cuts to stay competitive."
Even Tesla CEO Elon Musk has conceded that China is where the automaker could face its toughest competition.
Tesla did not respond to Reuters' request for comment on its China business. Grace Tao, Tesla's vice president in charge of external communications in China, said previously the price cuts in China reflected engineering innovation and answered Beijing's call to encourage economic development and consumption.
China's Association of Automobile Manufacturers expects sales of EVs and plug-in hybrids to surge by 35 percent in 2023 to 9 million vehicles - nearly a third of China's total new vehicle sales.
While Tesla has increased sales in China, its second-largest market, it has also lost share. From 15 percent in 2020, its share of the China EV market fell by a third to just 10 percent in 2022, according to data from the CPCA.
Tesla offers two models in China, the Model 3 sedan and the Model Y crossover. That keep-it-simple approach has driven scale and driven down costs.
After the latest price cuts, the Model 3 starts at about $34,000 and the Model Y at $38,000. But Chinese car shoppers, back out in showrooms this year after the end of China's tough COVID-19 curbs, are being courted by competitors offering a broad range of alternatives.
BYD, which overtook Tesla by global sales volume last year and has a market value well over $100 billion, offers more than 60 different versions of EV and plug-in hybrid cars. Much smaller but ambitious peer Nio has gone from two models to six over the same period and plans to launch five more this year.
"The aging product line is a real problem for Tesla," said Yale Zhang, managing director at Shanghai-based consultancy Automotive Foresight. "Once BYD and other EV startups follow to lower prices, the effect of Tesla's price cuts could vanish in the blink of an eye."