Tesla's China price cut raises questions about EV demand
Tesla is cutting the prices of its electric vehicles in China in the face of increased competition and the country's economic slowdown.
Why it matters: Tesla's presence in China is crucial to its financial health and hence to its development of future EVs and related technologies.
The big picture: "China’s the biggest EV market in the world, and you could argue that it’s the most competitive because it’s got the most players, including homegrown companies like BYD giving Tesla a real run for their money," Autotrader analyst Michelle Krebs tells Axios.
- The automaker cut starting prices for its vehicles in China by anywhere from 5% to 9%, according to multiple reports.
- US Tiger Securities analyst Bo Pei attributed the move to "overall soft auto demand in China" and "competition" with BYD, while CMBI analyst Shi Ji said it raises the prospect of a "price war."
What we're watching: Whether Tesla is at risk of losing its global leadership post in the EV space to the likes of Chinese EV maker BYD — or if this is simply a minor bump on the road to continued dominance.
The intrigue: EV prices had been rising, not falling, as automakers have struggled to keep up with demand.
- Tesla CEO Elon Musk has repeatedly insisted that the company has no challenges with demand.
- "I can't emphasize enough — we have excellent demand for Q4, and we expect to sell every car that we make for as far in the future as we can see," he told investors on a conference call last week.
The impact: Investors punished the stocks of other Chinese EV companies on Monday, sending shares of NIO, XPeng and Li Auto down by double-digits.
- Even BYD was down by nearly 9% in afternoon trading as traders reacted to the Tesla reports and news of China President Xi Jinping consolidating power as he locked up a third term.
Keep in mind: Established global automakers like General Motors, Ford, Hyundai, Kia, Nissan and Volkswagen are investing heavily in electric vehicles, aiming to take market share away from Tesla throughout the world.
- "We’ve anticipated all along that as more and more competitors come on board, Tesla will be challenged," Krebs says.
The impact: Tesla shares fell 6.9% Monday morning before recovering to close down 1.5%.
(Disclosure: Autotrader is owned by Cox Enterprises, which owns Axios.)