Will Chinese EV Makers Follow Tesla’s Lead in Raising Prices?
On May 2nd, Tesla’s website displayed a global price increase for its electric vehicles. This comes after multiple price cuts earlier this year. The starting prices of Model 3 and Model Y have both risen by 2,000 yuan ($289) in China.
Despite the recent price increase, Tesla’s Model 3 and Model Y remain significantly cheaper than they were last year. In China, the starting price for a Model 3 is currently 231,900 yuan. Meanwhile, in the United States, the starting prices for a Model 3 and a Model Y are $40,240 and $47,240 respectively, which represent discounts of between 14% to 24% compared to last year’s selling prices.
Following the recent price increase, numerous consumers are now uncertain about placing an immediate order for a car. According to a salesperson at a Tesla store who spoke with Beijing Business Daily, “Since the price hike, many customers have been visiting our store to inquire whether there will be any further adjustments in prices. All pricing information is available on the official website and stores do not receive advance notice of any upcoming price changes.”
Tesla has been frequently adjusting its prices since the beginning of this year. In fact, it has already made seven price adjustments in the United States alone. The company’s pricing strategy has shifted from a traditional fixed model to a real-time pricing model that is similar to those used by airlines, hotels, and ride-hailing platforms.
Tesla’s recent price increase followed the announcement of its financial report last month, which revealed a significant decline in profit margin. The gross margin fell below 20%, marking the first time in nine quarters that Tesla experienced such a drop. Despite this, CEO Elon Musk stated that the company will prioritize electric vehicle sales growth over profit margins. He did note, however, that prices may be raised if necessary to align with deliveries and production levels.
In the second half of last year, Tesla initiated a price reduction in China which led to a price war in the country’s electric vehicle market. This move prompted local brands such as BYD to engage in fierce price competition and caused over 40 global car brands to follow suit by reducing their prices in China. The China Passenger Car Association reports that auto sales have decreased by 13% during the first three months of this year, with significant declines observed for fuel-powered cars and some slowdowns for new energy vehicles.
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An employee of an electric vehicle manufacturer told The Paper that the decision to increase prices among other car companies in response to Tesla’s recent price hike would depend on their own supply and demand situation. In highly competitive markets, companies tend to exercise caution when it comes to raising prices as they aim to maintain consumer interest in purchasing cars.
