Tesla Inc showed signs of divergent strategies in the world’s two biggest automotive markets, raising prices to boost profit margins in the United States while keeping prices steady in China and hoping to grow sales there.
Tesla raised prices for the most affordable versions of Model 3 and Model Y about a dozen times this year in the United States, according to data tracked by Reuters. At the same time, Tesla recently introduced an affordable Model Y version in China, where it refrained from price hikes.
Tesla posted record vehicle deliveries in the second quarter, and the price increases in North America boosted quarterly profits to a record.
But in China, the world’s biggest electric vehicle (EV) market, Tesla faces competition from local rivals and problems that include product recalls, high-profile protests by consumers and pressure from regulators.
Bernstein analyst Toni Sacconaghi said introduction of the lower-priced Model Y in China ”may make sustained margin improvement difficult” for Tesla and raises questions about ”the health of Chinese demand.”
Two rockets fired near US embassy in Baghdad: Security source
A study by Bernstein analysts found Tesla owners in China were less enthusiastic and had lower repurchase intentions than owners in the United States and Europe.
Tesla raised prices for Model Y Long Range at least six times in the United States this year, bumping by $5,500 to $53,990. In China, the world’s most valuable carmaker raised prices of the Model Y SUV and Model 3 sedan only once this year.
The Model Y version has a price tag of 276,000 yuan ($42,394). The company also has launched promotional campaigns in China such as loan offers.
”I think Tesla is looking to be as competitive as it can be in China. Lower prices will be a part of that aggressive market positioning,” Roth Capital Partners analyst Craig Irwin said. ”There is a very large difference in battery prices in the U.S. and China, as well as local vehicle manufacturing costs.”
Tesla started production at its Shanghai factory in late 2019. It has boosted sourcing of cheaper local components, including batteries from China’s CATL and LG’s Chinese factory.
”It wasn’t so long ago that the group was trimming prices in the U.S. to gain scale and maximize profitability, and it feels like we’re now seeing that in China too,” Hargreaves Lansdown analyst Nicholas Hyett said.
The low cost of producing local EVs in China would have a lasting effect for Tesla, said Gene Munster at Loup Ventures.
”Teslas are on average 3x the cost of a typical EV made in China so they have to be priced less than the U.S. to compete,” Munster said. ”Prices of Teslas in China will be below (the) rest of the world for the next decade.”
Tesla also cut costs and boosted margins in the U.S. market by getting rid of some parts like a radar sensor and lumbar support.
Tesla shares rebounded 0.5% in morning trade on Wednesday after falling the previous session.