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Tesla cuts prices in China by up to 9% as lower demand, price war looms

SHANGHAI (Reuters) – Tesla has cut the starting prices of its Model 3 and Model Y cars by as much as 9% in China, reversing a trend of increases across the industry, amid signs of softer demand in the world’s biggest auto market, as analysts warn of a price war.

The price cuts, published in listings on the electric car giant’s China website on Monday, are Tesla’s first in China in 2022 and come after Tesla began offering insurance incentives to buyers last month.

The move to cut some prices by nearly a tenth comes after Tesla CEO Elon Musk said last week that “sort of a recession”[ads1]; in China and Europe was weighing on demand for its electric cars.

Data on Monday showed retail sales in the world’s No. 2 economy grew 2.5% in September, below expectations for growth of 3.3% and less than half of August’s 5.4% growth. Analysts are warning of growing inventory gluts in China, where car sales growth slowed in September while sales of electric vehicles rose at their slowest pace in five months.

The US carmaker and several Chinese rivals have raised prices several times since last year due to rising raw material costs. But Tesla has also regularly adjusted the prices of its cars in China, including reductions, which reflect government subsidies.

Tesla told Reuters it is adjusting prices in line with costs. Capacity utilization at the Shanghai Gigafactory has improved, while the supply chain remains stable despite the impact on the economy of China’s strict zero-Covid restrictions, leading to lower costs, it said.

The starting price of the Model 3 sedan was reduced to 265,900 yuan ($36,727) from 279,900 yuan, while the price of the Model Y sport utility vehicle was reduced to 288,900 yuan from 316,900 yuan, the product prices listed on the Chinese website showed.

Tesla upgraded its Shanghai factory earlier this year in a development that brought the factory’s weekly production capacity to around 22,000 units compared with levels of around 17,000 in June, Reuters previously reported.

Tesla delivered 83,135 Chinese-made electric cars in September, up 8% from August, setting a production record for the Shanghai factory since production began in December 2019.

But analysts at China Merchants Bank International (CMBI) warned last week that 2023 would bring more competition to the electric car sector, saying it expected to see sales growth for electric and hybrid cars on an aggregate basis to fall below 50%.

“The price cuts underscore the possible price war that we have been emphasizing since August,” said Shi Ji, an analyst at CMBI.

“That is expected given Tesla’s capacity increase in 3Q22, and we expect other new energy vehicle (NEV) manufacturers to follow suit, as China’s NEV capacity will increase significantly next year.”

($1 = 7.2399 Chinese Yuan)

(Reporting by Zhang Yang and Brenda Goh; Editing by Kenneth Maxwell)

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