Price reduction no longer benefits Tesla's China sales

Nuying Huang, Taipei; Peng Chen, DIGITIMES Asia 0

Credit: AFP

At the beginning of 2023, Tesla cut its vehicle prices in China and ignited a price war. The company recently launched a similar sales campaign in the world's largest car market but has not seen the desired results. Chinese media reported that competitors have launched more Tesla-like EVs, affecting the US company's market share.

Supply chain sources said China saw vehicle sales lower than usual in the Lunar New Year in February. Car sales also tend to be slower in March. More importantly, the ongoing price reduction has made consumers more cautious about their purchases. Since the economic condition remains weak, everyone wants to wait until the car price drops to the lowest point.

According to the China Passenger Car Association (CPCA), passenger EVs reached 447,000 units in wholesales last month. The number decreased by 9.7% year-on-year and 35% month-on-month. BYD sold 120,000 cars in February, a 40% drop from January and a 37% decrease year-on-year. The sales volume was the carmaker's lowest point in the past 21 months.

Tesla reached 60,000 EVs in China last month, down 16% month-on-month and 19% from 2022.

According to China-based media, Tesla subsidized buyers CNY8,000 (US$1,112) for insurance on a limited basis in early March. Before that, the company had started offering discounts up to almost CNY35,000. However, the moves did not significantly benefit customer inquiries and sales primarily because Tesla is losing price dominance in passenger cars with a price tag between CNY250,000 and CNY300,000.

Tesla only produces four passenger vehicles. Many rivals in China have targeted the company and launched dozens of EVs with similar features. In addition, Chinese EV companies have gradually made the 800-volt platform, Qualcomm Snapdragon 8295 platform, and urban smart driving technology standard features for their EVs priced around CNY250,000, aiming to challenge Tesla EVs.

Automotive suppliers said Tesla successfully boosted its sales with price reduction at the start of 2023 because China's car market still saw high average EV prices and just experienced the termination of a national subsidy program. In the past year, Tesla began to raise prices while competitors kept lowering them.

Sources said gasoline cars and hybrid EVs are joining the price war in China. Tesla has been forced to lower its vehicle prices. Therefore, consumers would delay their purchase until prices drop to the desired level.

Sufficient and even over-supply of car components has also pushed automakers to keep lowering vehicle prices. For example, lithium batteries, which account for the most production cost of an EV, saw prices slump almost 50% in 2023, offering carmakers more leverage. The same situation exists in the car chip segment.

China-based EV makers move fast in model iterations, causing a significant challenge for Tesla in the short term. Although these new cars might provide almost identical features, they could reach more different consumers. In addition, demand for Plug-in Hybrid EVs (PHEV) in China is higher than for battery EVs. The situation poses another challenge for Tesla, which manufactures BEVs only.