The Chinese division of American electric vehicle (EV) manufacturer Tesla Inc. announced on Friday that it has lowered the price of its popular Model 3 to settle at a new overall post-subsidies price tag of 235,900 yuan ($36,500), a reduction of 15,000 yuan.
According to a post by the firm’s official account on the country’s Twitter-like platform Weibo, the change aims to adjust to the “actual situation of cost fluctuations.”
Tesla’s decision to reduce prices in the Chinese market likely reflects its ambitions to overhaul the types of batteries used to power its cars, shifting from the more expensive lithium-ion batteries in favor of new innovative prototypes.
Some of the most promising alternatives are lithium iron phosphate (LFP) batteries that offer the same level of power at a significantly lower cost. Crucially, LFP batteries do not require the inclusion of cobalt in their design – a mineral which, in addition to its hefty price, also carries reputational risks to EV firms due to its association with various conflicts and labor-related issues in places such as the Democratic Republic of the Congo.
At the end of June, Pandaily reported that Tesla had reached an agreement to expand its collaboration with Chinese EV battery manufacturer CATL in a supply arrangement scheduled to last until December of 2025. Fujian-based CATL on Friday unveiled a new generation of sodium-ion batteries and sodium-lithium hybrids, a development that could have a significant impact on the domestic EV industry.
The reduction of Tesla’s Model 3 price comes on the heels of a stellar second quarter performance that saw strong sales in the Chinese market and record-breaking production at its Shanghai manufacturing plant.
Tesla’s premium market position in the country means it primarily targets upper-class car owners, with its models branded as luxury EVs that sell at a significantly higher rate than competitors.
According to a report earlier this year by consulting firm McKinsey & Company, Tesla’s “Model 3 became the single best-selling premium BEV [battery-electric vehicle] model in China in 2020.”
Nonetheless, the firm has encountered hurdles of late, as witnessed by the unexpected removal of its popular long-range Model 3 from the Chinese market – a move likely indicative of supply chain constraints and a shift in focus to accelerate production of its Model Y.
Meanwhile, an expanding cohort of challengers in the domestic market have sprung up in recent years, offering a diverse range of EV models at much more affordable costs.
Domestic firm Xpeng, for instance, is currently selling its P5 model at 160,000 yuan – more than 75,000 less than Tesla’s Model 3 after its recent reduction. Furthermore, extremely cheap compact models have become more and more popular across the country of late, such as the Hong Guang MINI EV by car manufacturer Wuling, which sells at an incredibly low price below 30,000 yuan.
These new EVs collectively threaten to undercut Tesla’s preeminence in China’s growing new energy vehicle market. Thus, Friday’s cost-cutting measure may also stem from Tesla’s increasing need to reach a broader swathe of domestic consumers in the face of heightened domestic competition.