Faced with fast-growing sales figures in China, Tesla CEO Elon Musk has cut the price of the Shanghai-built car to close the gap to local industry leader BYD, putting the stock in a new slump.
On Thursday, the U.S. automaker lowered the entry point for its single-engine Model 3 sedan by 13% to 229,900 yuan, or about $33,500. Its similar sibling, the larger Model Y crossover, now retails for 259,900 yuan, or nearly $37,900—one-tenth less than its previous price.
This is now the second time Tesla has lowered prices in China, the world’s largest EV market, after trying to stimulate demand in late October. Even with the purchase incentive expiring at the end of last year, the bump only lasted a few weeks before the stimulatory effect on demand wore off. This is the latest data point that confirms that Tesla is currently growing so fast that it is not getting new customers.
Shares in Musk’s company are expected to open the new year dangerously close to the $100 mark, with shares down 8% in pre-market trading.
BYD’s sleek seal, the latest four-door hatchback that uses a fast 800-volt electrical system, structural “Blade” battery pack and more affordable lithium iron phosphate (LFP) chemistry, is now only more affordable than the Model 3.
The entry-level Seal starts at 212,800 yuan ($31,000) and offers a range of 550 kilometers (342 miles) comparable to Tesla sedans.
The Long Range and Performance versions of the 3 and Y also received substantial price cuts on Thursday, as Musk threw out a challenge to BYD, the company run by founder Wang Chuanfu and backed by Berkshire Hathaway’s own Warren Buffett.
The manufacturer based in China’s tech hub of Shenzhen only started building cars in 2004 and is behind the popular Song model, the flagship Han sedan and the Tang SUV sibling – all named after historic imperial dynasties.
Tesla’s rising challenge from BYD as demand surges from one week to the next. Although this is not understandable due to the terrible wave of COVID in China, its main rival appears to be unaffected by the wider economic malaise.
The latest weekly insurance data shows BYD sold 55,706 cars in the last week of last year to Tesla’s 4,338. Even excluding the plug-in hybrids that make up a portion of BYD’s volume, it still outsells Tesla on a like-for-like basis.
At least in part because BYD presents a wider portfolio split across its two main lines, Dynasty and Ocean. The latter features, for example, the entry hatchback called Dolphin which starts for as little as 116,800 yuan ($17,000).
Tesla’s $25,000 “fully autonomous” small car that was first teased at Battery Day in September 2020 could finally be revealed as a concept in March at the upcoming investor day, but it could be several years from production.
Price cuts cut into Tesla’s margins
To make matters worse, Giga Shanghai’s massive factory may be short on existing orders as exports to Europe drop as Giga Berlin slowly ramps up production.
According to the Patreon-funded TroyTeslike account, the number of cars that have been reordered but not yet delivered to Chinese customers has all but disappeared, from 174,000 vehicles at the end of July to be exact. zero in mid-December.
With fewer markets to absorb excess inventory, production recently had to be cut at Giga Shanghai Tesla, the brand’s largest and most efficient global vehicle factory.
Thursday’s price cut is sure to dilute Tesla’s industry-leading operating margins, as a 10% price cut generally cannot be offset by efficiency measures elsewhere in the business.
“We still haven’t seen a full quarter where we’ve cut prices from China – remember that happened in October, so we’ll get to Q4,” said YouTube channel host Rob Mauer. Tesla Everyday with 222,000 subscribers, during Thursday’s podcast.
“Now we have another price cut before we get more visibility. So this is important, it will definitely affect Tesla’s profits.
Tesla is due to report fourth quarter earnings after the close of trading on Wednesday, January 25th.
News of Musk’s impending price war in China sent shares of Hong Kong-listed Chinese EV makers soaring. BYD slid 2.6% in trading, while the smaller NIO fell 4%. Li Auto and Xpeng fared worse, with both losing roughly 7% on the session.
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