Oct 24, 2022 - Economy & Business

Tesla's China price cut raises questions about EV demand

Illustration of a parking full of cars with one empty space featuring a yuan symbol with a downward arrow

Illustration: Sarah Grillo/Axios

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.)

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