Tesla Has Flip-Flopped on Its Chinese Pricing Strategy. Here’s Why

November 22, 2018, 1:00 PM UTC

Back in July, Tesla raised the prices for its Model S and Model X in China, thanks to the trade war between the country and the U.S. In retaliation to tariff aggression from the White House, China imposed a 40% levy on car imports from the U.S., so up went Tesla’s prices. It had previously cut them.

Now, Tesla has changed tack again. On Thursday, the company announced that it was cutting the prices of the two models by between 12% and 26%. The effect is to make the cars more “affordable” to Chinese consumers — even if it does mean that Tesla will make less money.

“We are absorbing a significant part of the tariff to help make our cars more affordable for customers in China,” the company told Reuters in a statement.

Tesla imports all its cars for the Chinese market now, but it ultimately plans to build them there. Last month it secured land for a new “gigafactory” in Lingang, near Shanghai, and the facility should be producing vehicles within a few years.

For now, though, the tariffs have been proving problematic, particularly as there is a thriving electric-vehicle market in China. Bill Russo, the founder of advisory firm Automobility, told the Financial Times that Tesla was “having to compete in a market where there is more… [electric vehicle] supply coming, sometimes at very aggressive price points.”