Tesla Slashes Prices in China Amid Intensifying Competition and Pressure

Tesla CEO Elon Musk has changed the company's strategy in response to mounting pressure from China's electric vehicle (EV) market. The automaker has announced aggressive price cuts in China, the US, and Germany, following disappointing first-quarter sales and growing competition from Chinese rivals.

In China, Tesla's largest overseas market, the starting prices of four models were slashed by 14,000 yuan ($1,930). The Model 3 will now sell for around 231,900 yuan ($32,000), while similar reductions were made to the Model Y, Model X, and Model S vehicles. These price cuts come as Tesla faces intense competition from local automakers like Nio, BYD, and Xiaomi, which are offering new models with advanced features at lower prices.

The price conflict in China's EV sector has been ongoing since late 2022, with market leader BYD also marking down some of its popular models. Chinese automaker Li Auto immediately responded to Tesla's move by reducing prices for its models, including the L7, L8, L9, and the newly launched Mega SUV, by up to 30,000 yuan.

Why this matters: Tesla's most recent price cuts in China could potentially cost the company its entire operating profit in the world's biggest electric-vehicle market. The intensifying competition and pressure on margins highlight the challenges faced by global EV makers as they navigate China's rapidly evolving and fiercely competitive market.

Tesla is expected to report a 40% plunge in operating profit and its first revenue decline in four years when it releases its first-quarter earnings. The company has also pared back production schedules at its Shanghai factory, with shipments from the plant declining in the first two months of the year compared to the same period in 2023, even as overall passenger-vehicle sales in China increased.

Musk defended Tesla's pricing strategy, stating that "prices have to change frequently to match production with demand." However, the price cuts have squeezed Tesla's profit margins and caused its stock to fall. Analysts warn that Tesla's business in China "may now be breakeven or even negative" on the basis of earnings before interest and taxes.

As Tesla grapples with these challenges, Musk has also postponed a planned trip to India, citing "very heavy obligations" at the company. The automaker is dealing with recalls, layoffs, and a sales slump, with deliveries in the first quarter of 2024 down nearly 9% compared to the same period last year. The next few months will be crucial for Tesla as it attempts to turn around its business and appease investors amid the ongoing EV price conflict in China.

Key Takeaways

• Tesla cuts prices in China, US, and Germany to compete with local EV rivals.
• Price cuts could cost Tesla its entire operating profit in China, its largest overseas market.
• Tesla faces intense competition and pressure on margins in China's rapidly evolving EV market.
• Tesla's Q1 2024 earnings expected to show a 40% plunge in operating profit and first revenue decline in 4 years.
• Tesla postpones India trip, dealing with recalls, layoffs, and sales slump as it navigates the EV price war in China.