With the semiconductor crisis, inflation, and the rising cost of raw materials, any automaker reducing prices is either a miracle or a necessity. Tesla just cut the price tags for the Model 3 and Model Y made and sold in China by up to RMB37,000 ($5,094 at the current exchange rate).
The largest price reduction was for the Model Y Long Range. From RMB394,900 ($54,372), it now costs RMB357,900 ($49,277). Tesla states people will have to wait four to eight weeks to receive their cars. Anyway, the most strategic one also happens to be the second-largest price drop (thanks to the Chinese government’s help).
Tesla used to charge RMB316,900 ($43,632) for the Model Y Standard Range, which the EV maker only names Model Y in China. It reduced the price to RMB299,988 ($41,304), which is just enough for it to be eligible for government subsidies of RMB11,088 ($1,527). As the guys from CNEVPost warn, only vehicles below RMB300,000 make the cut. That helped the value drop to RMB288,900 ($39,777), which is the price Tesla announces on its website. Deliveries take one to four weeks to happen.
Without the Chinese government’s help, the price reduction would have been only RMB16,912 ($2,329), ending in fourth place in the discount ranking. The Model Y Performance and Model 3 Performance had more significant decreases. The electric crossover’s cost was RMB417,900 ($57,539) and dropped to RMB397,900 ($54,785), or a RMB20,000 ($2,754) decrease. The sedan’s price came down to RMB349,900 ($48,176) from RMB367,900 ($50,654), an abatement of RMB18,000 ($2,478).
Photo: Tesla
The lowest cutback was for the Model 3 Standard Range, called simply Model 3 in China. Its price used to be RMB279,900 ($38,538). Tesla lowered it to RMB276,988 ($38,137), and the government’s subsidy did the rest, making its price drop to RMB265,900 ($36,610). However, there’s a catch, as you must have certainly noticed.
At RMB279,900, the Model 3 was already eligible for the Chinese government EV subsidy, so this was not its real price: it was the value with CCP’s aid that Tesla prefers to present. Without it, the car’s true price tag was RMB290,988 ($40,065). The discount was RMB14,000 ($1,928).
There are two main narratives Tesla investors have to feed for share prices to keep expanding: that the company has the highest profit margins in the industry and that it has unlimited demand. The price reduction in China made it cut those profit margins in a market with escalating costs when unlimited demand would help it increase prices even further.
Photo: Hulu
Further proof of that is that Tesla had an insurance incentive that did not help it sell more cars as much as it thought. When it lowered the prices, it warned that the insurance incentive would no longer be available. On the other hand, CNEVPost said that Tesla is now offering the silver paint for free in its entry-level Model Y, something customers could only get if they chose a black crossover. The offer does not apply to other derivatives and other models.
Suppose the price reduction had anything to do with lower costs. In this case, the discounts would follow a certain coherence related to the battery pack type or something. They don’t. It is evidently a movement to increase demand in the Chinese market, the world’s largest one. In Tesla’s Q3 2022 earnings call, Elon Musk had to deal with the company missing its revenue targets. Despite the issue, the CEO stuck with the goal of reaching a 50% annualized growth rate in 2022. To get there, the company desperately needs to sell more cars in Q4 2022.
On top of that, people who bought a Model 3 and a Model Y in China are furious at the company. They made protests in China and promised to form a rights protection group to get the same discounts. This is not the first time such protests have emerged: there are pictures from 2019 and 2021 with customers protesting price reductions they did not receive at Tesla showrooms, which Tycho de Feijter, from CarNewsChina, shared in the tweet below. Selling more cars and keeping its growth promises may cost Tesla a lot of money.
Here is how Tesla's prices in China have changed. This was a good move by Tesla because they need more orders and the backlog was gone. I wish they had done it sooner. pic.twitter.com/b6o0OGE7Lo
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