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U.S. electric vehicle maker Tesla is considering cutting the prices of its China-built Model 3 sedans by 20% or more next year. Prices of the cars, which will be manufactured in Tesla’s new Shanghai factory, will stand at $50,500.
Automaker giant Tesla Inc. announced a price decrease for its Model 3 sedans that are built in China by 20% or more next year. Sources familiar with the situation told Bloomberg that Tesla hopes this move will attract new (and old) customers.
However, it is not easy to just cut costs. Still, Tesla has an idea. It will try to bring it down by using more locally produced parts, allowing it to import fewer components and avoid tariffs in that way.
New, lower prices might start at 355,800 yuan ($50,800), and the new prices could be here around the second half of 2020.
In October this year, the company confirmed that it has produced full vehicles at Gigafactory 3 in Shanghai as part of its trial production. Just a few weeks later, Tesla got its manufacturing license for the new factory in China, but it was still awaiting official sales approval of the made-in-China version of the Model 3.
Now, the company’s Chief Executive Officer Elon Musk is definitely counting on the new factory, first outside the US to compete with the likes of BMW AG and Daimler AG, to whom China is also a safe haven when it comes to selling new EV models. This step, analysts predict, will also raise pressure to local makers as are NIO Inc. and Xpeng Motors who will have to follow and lower the prices as well.
Bill Russo, founder of Shanghai-based consulting firm Automobility Ltd. Commented:
“People shop on price — this will help grow the market share of electric vehicles. This will also force the competing products to make adjustments.”
According to sources, 20% cut would bring the Model 3’s starting price below 300,000 yuan. Just for comparison, Xpeng announced its new P7 sedan will cost around 270,000 yuan to 370,000 yuan. NIO’s ES6 sport utility vehicle, its cheapest model, starts at 358,000 yuan.
The truth is, there are so many competitors right now especially considering EV makers who are struggling in a market that cannot be predicted at any time. For months now, sales of electric cars have been falling in China after the government scaled back subsidies. Also, we shouldn’t forget rising tensions between the U.S. and China making it harder for both automakers and buyers.
This Tesla’s move shows that the company is very much aware of its competition but it could also influence its initial sales as customers hold out for the lower prices.
Musk previously stated Tesla will make at least 1,000 cars a week in Shanghai by the end of the year. Just to compare, in California, it needs months to achieve this number. In Shanghai though, at least if it’s to believe to Musk, the weekly rate of 3,000 is a target.
Shares of Tesla’s suppliers rose on expectations of increasing sales. At the time of writing Ningbo Tuopu Group Co., which makes suspension and vibration-control mechanisms, jumped as much as 1.2%, while parts manufacturer Ningbo Xusheng Auto Technology Co. advanced as much as 2.9%.
As for the stock of Tesla, it is trading at $388,99 which indicates a 2.64% increase. In general, Tesla has a good year with its ups and downs (around $178 in June). However, since the end of August it has been rising. If we compare these figures with the beginning of the year, we will see progress. As the stock started the year at $300.
Be it as it may, Tesla is making final preparations to start with deliveries from its Shanghai factory. This month, Chinese authorities announced that the Chinese built Model 3 will qualify for state subsidies of as high as 24,750 yuan per car.