Tesla cuts prices in China as demand falls

EV giant Tesla has followed up this week’s tepid delivery results with hefty price cuts for the volume-selling Model 3 and Model Y in China. The cuts follow the end of a CNY10,000 subsidy from the Chinese government.

China has long been a solid market for the brand, but as BYD and the Geely group of companies saturate the market – along with many other home-grown players – Tesla has cut prices to boost sales momentum.

According to the Chinese Passenger Car Association, deliveries in China were down by 44 percent compared to November and 21 percent from the year before. November's delivery number, as reported by the CPCA, was 55,796.

This comes after missing deliveries by 15,000 units in the final quarter of 2022, to which the share market reacted strongly, pinning an almost fifteen percent drop in the share price in a single day – bringing it perilously close to $100. It has since recovered some of the losses.

The company is now worth a still-dizzying US$346 billion, but down significantly on its highest levels which exceeded the trillion dollar mark when the stock was trading at US$390.

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Incentives for US customers were reportedly as high as US$7500 on a Model 3, which is well over ten percent of the sticker price of even the Model 3 Performance.

The company anticipates a slowdown in China as the COVID drama drags on. During 2021 and 2022, the Shanghai Tesla factory, like so many others, suffered a number of shutdowns due to COVID while demand was running high. The factory closed for a week between Christmas and New Year, and is now running at a reduced rate as that demand falls off.

The official website shows price drops of between CNY48,000 (A$10,350) for the Model Y Long Range and CNY20,000 ($4310) for the Model 3 Performance. The Model Y Long Range drop is a stomach-churning (for Tesla accountants, anyway) 13.41 percent, while the Model 3 Performance’s discount is only a tick under six percent.

Each of the price cuts exceeds the removed subsidy and bring the prices to an historic low in China.

The biggest drop by percentage is the Model 3 Standard Range, down by 13.54 percent.

Twitter user Kelvin Yang, a software engineer, noted that the term “Tesla Price Cut” was trending at number two on Chinese social media network Weibo.

Trending on Weibo costs money, he observed – up to $100,000 per day, although he accepted it’s not necessarily paid for by Tesla.

Whichever way you look at it, the rubber has hit the road for Tesla. While many are blaming the tanking share price for CEO Elon Musk’s Twitter takeover and subsequent erratic behaviour, it’s probably far more to do with the market finally coming to terms with Tesla as a car manufacturer instead of a unicorn tech stock.

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Writing for The Guardian, Nils Pratley says that the stock has moved to a “less ludicrous level” as legacy manufacturers catch up.

Bloomberg, The Economist and many other financial publications are coming to the same conclusion. As are market analysts.

It’s worth noting that Tesla still had a record quarter for deliveries in Q4 2022, but with its mounting woes in the form of economic downturn, stronger competition, increasing regulatory attention, rising costs, shrinking demand, the troubled Semi and Cybertruck programs and a CEO who is preoccupied with Twitter, the road ahead looks a little harder than it did twelve months ago.