Tesla has cut the starting prices of its Model 3 and Model Y cars by up to 9% in China. This goes against the industry-wide trend of price hikes and comes as signs show that demand in the world’s largest auto market is slowing.
The price cuts, which were posted on the electric vehicle (EV) giant’s China website on Monday, are the first ones that Tesla (NASDAQ:TSLA) has made in China in 2022. They come after Tesla started giving buyers who chose Tesla’s insurance limited incentives last month.
The price cuts come after Elon Musk, the CEO of Tesla, said last week that China and Europe were going through “something like a recession” and that Tesla would miss its goal of delivering cars this year.
Related: The recession, according to Tesla’s Musk, may endure until 2024.
Last week, Musk told analysts that demand was high in the current quarter and that he thought Tesla would be “recession-resilient.”
China Merchants Bank International (CMBI) said that Tesla’s price cuts showed that electric vehicle (EV) makers in China face a growing threat from competition, especially since sales of EVs are expected to slow down until 2023.
“The price cuts show that there could be a price war,” said Shi Ji, an analyst with CMBI. “We have been emphasising this since August.”
Retail sales in China went up 2.5% in September, which was less than half of the 5.4% growth in August and less than what was expected (3.3%).
Analysts are worried about a growing oversupply of cars in China, where sales of cars slowed in September and sales of electric vehicles grew at the slowest rate in five months.
Since last year, the U.S. automaker and a few of its Chinese competitors have raised prices more than once because the cost of raw materials has gone up. But Tesla has also changed the prices of its cars in China on a regular basis, sometimes lowering them to account for government subsidies.
Tesla told Reuters that it was changing its prices to make them match its costs. It said that capacity utilisation at its Shanghai Gigafactory has gotten better and that the supply chain has stayed stable, even though China’s strict zero-COVID restrictions have hurt the economy. This has led to lower costs.
The starting price for the Model 3 sedan went down from 279,900 yuan to 265,900 yuan ($36,727). The starting price for the Model Y sport utility vehicle went down from 316,900 yuan to 288,900 yuan.
Kelley Blue Book, a research company, says that the average price of a new Tesla in the United States, which is the company’s biggest market, has been steadily going up since last year and was just under $70,000 in August.
Reuters reported that Tesla upgraded its Shanghai factory earlier this year. As a result, the factory can now make around 22,000 units every week, up from about 17,000 in June.
Tesla sent out 83,135 EVs made in China in September, which is 8% more than in August and a record for the Shanghai factory since it started making cars in December 2019.
Last week, CMBI analysts warned that there would be more competition in the EV market by 2023. They said that sales growth for EVs and hybrids combined was expected to drop below 50%.
Related: Tesla, under Elon Musk, held onto $218 million worth of bitcoin in Q3.
Tesla is currently the third best-selling electric vehicle (EV) maker in China, behind BYD Motor and SAIC-GM-Wuling. It is the only foreign company on the China Passenger Car Association’s list of the 15 best-selling EVs.
CMBI said that it expected other automakers to follow Tesla’s lead and cut the prices of battery-electric and plug-in hybrid cars next year because production capacity is expected to go up.
$1 is worth 7.2399 Chinese yuan.
