Tesla slashes car prices in China for second time in 3 months

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SHANGHAI (Reuters) -Tesla cut car prices in China for the second time in less than three months on Friday, fuelling a price war amid a darkening demand outlook in the world's largest auto market.

The latest cut, along with a reduction in October as well as various incentives that amount to as much as 10,000 yuan extended to Chinese buyers over the past three months, amount to a 13% to 24% reduction in Tesla (NASDAQ:TSLA)'s prices from September, according to Reuters calculations.

On Friday, the U.S. electric vehicles (EV) maker slashed prices for all versions of its Model 3 and Model Y cars in China by between 6% to 13.5%, according to Reuters calculations based on the prices shown on its website. The starting price for Model 3, for instance, was cut to 229,900 yuan ($33,427) from 265,900 yuan.

"Tesla's price adjustments are backed by innumerous engineering innovations," Grace Tao, Tesla's vice president in charge of external communications in China, posted on her Weibo (NASDAQ:WB) social media account on Friday. "[They] answer the government's call to promote economic development and encourage consumption."

The move comes after December deliveries of Tesla's China-made cars hit their lowest in five months, and also just days after Beijing ended a subsidy program that helped build the world's largest EV market. Softening demand has forced Tesla and its rivals to absorb the brunt of that decision.

China Merchants Bank International (CMBI), which warned in July that China's EV sector was headed for a price war, said Tesla's price reduction affirmed the prediction, and said the U.S. firm may have to do more, especially as competition with its Chinese rivals intensifies.

The Model 3 and Y have been the only models Tesla delivers in China, though on Friday it announced prices for the Model S and Model X in China.

"Tesla needs to further cut prices and expand its sales network in China's lower-tier cities amid ageing models," said CMBI analyst Shi Ji.

"We expect new EV production capacity in China to outpace new demand in 2023 and Tesla Shanghai's capacity utilisation could drop to about or even below 80% this year if its Berlin plant ramps up."

BYD, which has a much larger variety of offerings that comprise both plug-in and pure electric vehicles, saw its retail sales in China double in December while Tesla's fell 42%, according to data from CMBI.

Tesla did not offer any additional comment when contacted by Reuters, and a spokesperson only referred to Tao's Weibo post.

The car maker's discounts have brought the starting price of Model 3 to the same level of BYD's best-selling Han EV sedan, which is sold from 219,800 yuan. The Chinese EV maker recently raised the prices for its best selling models after losing the central government subsidies.

Sales of BYD's Han series, including the plug-in hybrid versions, were more than double that of Model 3's in China in the first 11 months, according to the China Passenger Car Association.

The China prices of the Model 3 and Model Y cars are now 24% to 32% lower than those in the United States, Tesla's largest market, Reuters calculations showed, due to reasons including different material and labour costs.

($1 = 6.8775 Chinese yuan)