Tesla cuts the price of China-made Model 3 cars by 9 per cent to compete with home-grown brands in world’s No. 1 car market

Daniel Ren

Tesla has cut the price of Model 3 cars rolling off its first offshore Gigafactory in Shanghai, as it reduces the premium of its bestselling electric vehicles to compete for the affection of China’s budget-conscious owners in the world’s largest car market.

The price of a Model 3 with a standard-range battery pack has been lowered to 323,800 yuan (US$46,500), from 355,800 yuan, according to Tesla’s website, compared with NIO’s electric SUVs at 358,000 yuan, and Xpeng Motor’s P7 at 240,000 yuan. After the Chinese government’s 25,000-yuan subsidy, a Model 3 car starts from 299,050 yuan.

“A Tesla with the price tag of lower than 300,000 yuan is believed to be very attractive to Chinese car buyers,” said Gao Shen, a Shanghai-based independent manufacturing sector analyst. “The price cut is set to fuel competition in the country’s high-end electric vehicle market.”

The aggressive pricing, adding to the 10-per cent tax exemption offered by Shanghai’s local authorities, gives California-based Tesla a leg up in China, where it completed building its first factory outside the US a year after breaking ground. The first of the vehicles to roll off the Lingang assembly were shipped to 15 employees on December 30, while deliveries to customers would commence on January 7.

Infographic: China's vehicle ventures

The US$2 billion Lingang factory is expected to make about 3,000 Model 3s a week initially, ramping up to 500,000 per year when it becomes fully operational.

In addition to tax exemptions and subsidies, Tesla has also been receiving a lot of Chinese government largesse. The carmaker, founded by Elon Musk, was the first wholly foreign-owned car plant in China, part of the Chinese government’s plan to attract foreign investments and technology to anchor the nation’s ambitions of becoming a powerhouse in new-energy vehicles (NEVs), one of 10 key industries under the “Made in China 2025” economic blueprint.

The carmaker last week received 11.25 billion yuan of financing and revolving credit from four Chinese state-owned banks - China Construction Bank, Industrial and Commercial Bank of China, Agricultural Bank of China and Shanghai Pudong Development Bank - at cheaper-than-market rates.

The favourable terms for Tesla come as China’s vehicle market has been grappling with more than a year of sales slumps. In addition to NEV start-ups like NIO and Xpeng, Tesla would have to compete with traditional carmakers that are making a big push into electrification, from home-grown Chinese brands like BYD and Geely Automobile to international marques like Volkswagen, Nissan Motor and Ford Motors.

Even electric vehicle sales have run out of power after four years of taking market share from cars powered by internal combustion engines (ICEs). Sales of NEVs fell 42 per cent in November to 78,000 units, the fifth straight month of declines, according to the China Passenger Car Association.

Shares of Chinese carmakers were mixed amid a declining market, after Tesla’s price cut. BYD, the largest Chinese maker of electric vehicles, fell by as much as 1 per cent in Shenzhen, while Geely’s shares jumped by as much as 4.4 per cent in Hong Kong. NIO’s shares plunged 7.5 per cent overnight in New York trading, in their biggest single-day drop since November 29. Xpeng is not publicly traded.

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