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Elon Musk is slashing Tesla prices to whip up his sluggish sales in a struggling core market: China

October 24, 2022, 12:03 PM UTC
Elon Musk needs to pay for his $44 billion Twitter deal with Tesla stock, and he's going to extreme lengths to drive up the share price.
Muhammed Selim Korkutat—Anadolu Agency/Getty Images

Elon Musk slashed the price of his entry range Tesla vehicles in China by as much as 9% to reignite sluggish domestic demand in the final quarter. 

The rear-wheel-drive standard-range version of the Model Y crossover saw its price cut to just below ¥300,000 ($41,312), the threshold to qualify for a national EV purchase subsidy that knocks the equivalent of an additional $1,500 off the vehicle. The ¥11,088 incentive is set to expire at the start of January (not to be confused with the recent extension of a tax break). 

The combination of the price cut together with certainty over the run-out of the subsidy should now provide an impetus to those Chinese consumers that held off purchases until they had certainty. Speculation over both had been rife in recent weeks.

The move comes as Musk looks to deliver on his promise for an “epic end of year” in which the company hopes to grow volumes by roughly 50% and drive the stock price higher to achieve a $4.5 trillion market cap, higher than the combined value of the two most valuable companies today (Apple and Saudi Aramco). This week is crucial for Tesla, as the entrepreneur is expected to sell billions of dollars’ worth of stock this week to finance his $44 billion Twitter deal before an Oct. 28 court deadline. 

Tesla is expanding output in China at the same time it is servicing more and more European customers from its new German plant rather than from its Shanghai factory. If local Chinese demand tails off, the company risks being stuck with fixed costs from unproductive men and machinery weighing on its income statement.

Tesla may be the dominant EV brand in the U.S. by a long margin, but the situation in China is completely different. It faces a number of competitive domestic rivals, above all the Warren Buffett–backed Build Your Dreams.

BYD, China’s largest EV manufacturer, predicted earlier this month its third-quarter net profit more than quadrupled as it extended its sales lead over Tesla.

By comparison, demand for Teslas in the country has been more sluggish recently. 

Currently the Model Y standard range has a waiting time of just one to four weeks rather than several months, according to the company’s website configurator. Since it takes some time for an order to be processed and a car manufactured, this means there is enough capacity at present to meet forecast demand in China without breaking a sweat. 

This may change soon now that the price for the crossover dropped to ¥288,900 (¥299,988 excluding subsidy) from a previous ¥316,900. 

Tesla does not offer a standard-range Model Y in the U.S. market, as Americans would not accept a vehicle that can drive only the equivalent of 267 miles on the European WLTP test cycle. Germany does, however, and the price for the same vehicle imported out of China is €53,990 ($53,000), although a large chunk of the premium is due to the country’s 19% value-added tax and import duties.

By comparison China’s rear-wheel drive Model 3 sedan, which shares many of the Model Y’s parts, had longer wait times of four to eight weeks, since it already qualified for the subsidy. Nevertheless, Tesla cut the price of its entry model to ¥265,900 from a previous ¥279,900, including subsidy.

Other, more powerful versions also saw price cuts.

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