Tesla Surprisingly Raises Prices Twice in Four Days in China

BEIJING, May 5 (TMTPOST) Tesla surprisingly reversed the price promotion campaign in China, its second largest market, where the sweeping price war was initiated and intensified by the electric vehicle (EV) giant in the beginning of the year.

Source: Visual China

Tesla China has raised prices by RMB RMB19,000 for a batch of new models on Friday. According to the official website, the basic version of Model S with Dual Motor All-wheel Drive (AWD), and the Model S Plaid version were sold at RMB808,900 and RMB1.0289 million, respectively, representing increases of 2.4% and 1.9% from their previous prices, and prices of the basic Dual Motor AWD version of Model X and its Plaid variant were hiked by 2.2% and 1.8%, to RMB898,900 and RMB1.0589 million, respectively.

This is Tesla’s second price adjustments in China in just four days. It has increased prices for Model Y and Model 3, its two top-selling models, in a range of markets on Tuesday. It raised prices of these models by RMB2,000 in China. In the United States, the starting price rose by US$250. The price increase was 37,000 yen in Japan and C$300 in Canada.

Unlike the price move earlier this week, the recent increase in made in China didn’t affect all the versions that can be made locally. Model S and Model X, as the luxury vehicle priced at more than RMB1 million, went on sale in January in China, starting from RMB789,900 and RMB879,900 respectively. These are the only two models that have to be imported from the U.S., instead of making at Gigafactory Shanghai. The first batch of two new models has been delivered in China and display cars also arrived at Tesla stores in Shanghai in late March.

Tesla has launched five rounds of promotion including price cuts and various subsidies from the mid September to the end of last year. The U.S. company also intensified price war this year to boost demand. It slashed price by up to 13% in China on January 6, making the starting price of Model Y and Model 3 down to new low, about 43% and 30% cheaper than those on sale in U.S. Less than a week later, it lowered prices across the U.S. Europe, the Middle East and Africa by as much as 20% on January 12, expanding its price war globally. As of April 19, it has reduced prices in the United States for the sixth round this year.

Financial results released last month showed Tesla earnings in the first quarter of the year dented by major price cuts. The non-GAAP diluted earnings per share (EPS) fell 21% year-over-year to $0.85, just shy of the estimated $0.86. That is the first yearly drop in non-GAAP EPS since the third quarter in 2019. Its gross profit margin that quarter dipped below 20% to a two-year low 19.3%, missing analysts’ estimated 22.4%. Tesla CEO Elon Musk signaled more cuts to come at the earnings call. "We've taken a view that pushing for higher volumes and a larger fleet is the right choice here versus a lower volume and a higher margin," Musk said. He also noted "orders are in excess of production" after the latest round of vehicle price cuts.

The recent price increases are really unexpected given Musk’s remarks, while the pricing change may be Tesla’s purposeful move. Tesla has launch a price war against the trend last year, when the critical period when Beijing’s national subsidy for electric vehicles was expiring and battery costs were still high, and such fact is a good evidence that the EV maker has done enough research on the changes in the Chinese market landscape, how incredible its pricing power is, how long it can sustain in a price war, and even the follow-up strategies of rivals, according to Chen Jia, a fellow of International Monetary Institue, Renmin University of China.