Tesla’s Price Reduction Strategy Boosts Sales in China
Tesla has regained its footing in China thanks to its price reduction strategy. According to a report from the China Passenger Association, Tesla’s domestic retail sales showed an increase of almost 26% in February. Tesla’s Gigafactory Shanghai delivered a total of 74,402 EVs in February and the retail sales for last month stood at 33,923 units.
Price Reduction Strategy
Experts have predicted that the company will see a steady increase in sales due to its price cut which has been somewhere between 6% to 13% in January alone. The company has slashed prices for all versions of its China-made Model 3 and Model Y. The starting price for Model 3 was slashed by 13.5% to 229,900 yuan ($33,515), while the starting price for Model Y was reduced by 10% to 259,900 yuan ($37,889).
Impact of Price Reduction
Tesla has reduced its price twice since October 2022, to regain its market and boost its sales amidst a slowing demand and sluggish economy. The company cannot afford to lose the Chinese market as it is the world’s largest EV consumer and automobile market.
Tesla received orders for 30,000 new EVs within just three days of slashing its price. The tier two and three cities showed a notable increase in demand after the second round of price cuts. In fact, some stores showed a 500% increase in sales after the price cut.
The price reductions were so significant that many existing Tesla owners protested against the company as they felt that they were given overpriced vehicles, the value of which would significantly reduce after the price cuts.
Challenges in the Chinese Market
The demand for EVs in China has dwindled since last year owing to a number of reasons including the zero covid policy and a sluggish economy. Moreover, Beijing ended a 13-year-long subsidy for electric vehicle purchases on December 31, which has put additional pressure on EV makers. China’s EV market was once completely dominated by Tesla. But now the company faces stiff competition from domestic players like Nio, BYD, Xpeng, and more.
All these reasons led the company to significantly reduce its EV price. Experts have predicted a potential price war as EV makers fight for a share of the market. However, in the short term, the price reduction seems to pay off as Tesla sees an increase in its sales.
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