China EV war: Tesla’s US$289 increase signals end of price cuts, industry observer says

Price increase ‘a gesture’ telling buyers that Tesla will not cut prices any more, Shanghai-based EV data provider CnEVpost’s Phate Zhang says
Entry level Model 3 will cost 231,900 yuan, while the basic Model Y now starts at 263,900 yuan

Electric & new energy vehicles

Pearl Liu

Published: 5:00pm, 2 May 2023

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Tesla is increasing the price of its China-made electric vehicles (EVs) amid a plunge in profits in mainland China, four months after it sparked a price war among makers of new-energy vehicles (NEVs) in China by offering deep discounts on its cars.

The US carmaker has raised the prices of all variants of the Model 3 and Model Y made in Shanghai by 2,000 yuan (US$289) effective from Tuesday. The entry level Model 3 will cost about 0.9 per cent more at 231,900 yuan, according to an updated price list on Tesla’s website in China. The basic Model Y now starts at 263,900 yuan.

On January 6, CEO Elon Musk cut the prices of every variant of the Model 3 and Model Y by between 6 per cent and 13.5 per cent. The cheapest Model 3s were made cheaper by 36,000 yuan each, or 13.5 per cent, and cost 229,900 yuan.

“It is more like a gesture telling buyers in China waiting on the sidelines for more discounts that Tesla will not cut prices any more,” said Phate Zhang, founder of Shanghai-based EV data provider CnEVpost.

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The price rise comes after Tesla posted its lowest quarterly gross margin in two years in April, missing market estimates as net profit fell by nearly a quarter year on year to US$2.51 billion. The carmaker was hit by higher raw material, logistics and warranty costs, as well as a production ramp-up of its 4680 battery cells, according to a filing made to Nasdaq. Shares of the Texas-based carmaker have slumped by 16.1 per cent in the past month.

Tesla delivered 76,663 units in March while BYD, which surpassed the US carmaker to become the world’s biggest EV maker by sales last year, delivered 209,448 NEVs in April. Tesla is also being chased by other Chinese EV start-ups such as Li Auto, which delivered more than 25,000 units in April.

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Since October 2022, thousands of motorists in China have drifted towards BYD’s cars that are priced below 200,000 yuan, about 30 per cent cheaper than premium EVs assembled by Tesla and its Chinese competitors such as Nio and Xpeng, amid concerns about job prospects and incomes in a slowing economy.

Tesla spearheaded a price war by offering huge discounts on its Shanghai-made Model 3s and Model Ys twice since October last year. Following a price cut in early January this year, the prices of its cars hit their lowest levels since the US carmaker’s Gigafactory 3 began operations at the end of 2019.

Xpeng, BYD and Aito, an EV brand backed by telecommunications equipment maker Huawei Technologies Co, followed suit. Manufacturers of conventional cars and EVs, such as Volkswagen’s mainland Chinese ventures and Dongfeng Honda Automobile, also cut prices to reduce inventory.

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BYD joined the price war in March, offering discounts of up to 20,000 yuan on its Dynasty series. Buyers of its bestselling model Seal, originally priced at 212,800 yuan, can currently receive an 8,888 yuan subsidy and a further 2,500 yuan cash award for switching from petrol cars to EVs.

Additional reporting by Daniel Ren