Following a looming recession in China, Tesla Inc. (NASDAQ: TSLA), through its CEO, has announced price cuts on its models so that the company can meet its target of delivering a predetermined number of electric vehicles in China. China’s economy was hit hard by COVID-19, which stoked economic worries in recent months.
This price reduction was taken after Tesla produced the Model 3 and Model Y, two of its most potent cars, at its Shanghai Giga plant, boosting manufacturing capacity there by 30%. These models have to contend with other new models being introduced by its rivals on the Chinese market. As a result, the price cuts will greatly boost competition.
The starting price for the Tesla Model 3 would drop by close to 5%, while the starting price for the Model Y (an SUV) would drop by approximately 8.8%. The pricing changes would take effect right away. According to Tesla, the price adjustments were made to account for input cost adjustments, increased capacity and reliable input supply.
In order to improve the sales of its new Model Y and Model 3 models in the last quarter of the year, Tesla is also enticing customers with incentives if they choose to purchase insurance from insurance companies that have partnered with Tesla. And indeed, a sharp spike in online sales was observed from this move.
Another action Tesla has taken in order to boost sales is offering discounts. This was agreed after the increase in production of up to one million vehicles a year at the Giga Shanghai assembly, making the company the leading producers among many other Chinese producing brands. In this way, Tesla is increasing its ability to compete with other regional competitors whose vehicles are all highly priced on the Chinese market. The discount gives Tesla an edge over the competition.
It is predicted by CMBI that other automakers will likely need to reduce their prices for batteries and plug-in vehicles as well following Tesla’s lead due to an anticipated increase in production capacity in the coming year 2023.
Due to the closure of its Shanghai factory, Tesla experienced a decrease in production in the first quarter of this year during COVID-19 lockdowns in various Chinese cities. Tesla faced an unstable supply even after production started up again in June, which prevented the company from fully recovering. However, September saw a notable increase in deliveries, by approximately 8%.
Despite fierce competition, Tesla’s decision to lower its prices will enable the company to increase deliveries and possibly reach its 2022 goal.
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