Investors worried about rising competition caused shares to plummet.
Tesla cut Monday’s prices in China for its cars, an indication of increasing competition in the largest market for automobiles in the world. This led to a plunge in shares.
The Model 3 sedan was offered by Tesla’s Chinese website on Monday at a price starting at 265,900 Renminbi (or $36,600 including government subsidies), a 5 percent discount. The Model Y utility vehicle was listed at 288,900 renminbi. This is a 9 percent reduction.
Tesla shares plunged more than 6 percent before recovering slightly. The price cuts reinforced investors’ fears that Tesla’s dominance in the electric vehicle market and profitability were at risk from slower economic growth. Tesla’s strong demand had allowed it to raise its prices frequently until recently.
China’s Tesla is competing with domestic companies such as BYD Motor, SAIC Motor, and Nio. These companies are also looking to enter the European market with cheaper electric vehicles. China’s government has promoted electric vehicles and battery manufacturers, seeing this as an opportunity to enter the global market and challenge established Japanese and Korean carmakers.
China is the largest country in terms of car sales, but Chinese automakers are a small player in the rest. Because China is perceived as having greater growth potential than Europe and the United States, investors closely monitor Tesla’s performance there.
Tesla shares fell 12 percent since Wednesday’s announcement that the third-quarter profit numbers disappointed Wall Street. Investors had expected more, even though its earnings for the third quarter increased by $3.3 billion over the previous year.
Tesla’s production has been increasing at new factories in Austin, Texas, and Berlin. Investors are concerned. Tesla said last week that factory ramps can take time.
The stock of Tesla is also under pressure as traders expect Elon Musk to have to sell more shares in order to complete his purchase of Twitter on Friday.
The Tesla price reductions in China may be good news for car buyers. Popular electric models such as the Ford Mach-E and Hyundai Ionic 5, or the Volkswagen ID.4 are difficult to find. There have been reports that dealers charge thousands of dollars more than what the manufacturers suggest.
As automakers produce more cars due to fewer supply chain issues, the market could be shifting. Rising interest rates also reduce demand by sharply increasing monthly car payments.
Tesla’s wait times have been decreasing already, partly because Tesla was able to increase production at its Shanghai factory, which had been affected by slowdowns due to pandemic lockdowns.
The Chinese Tesla website informs potential buyers that they can receive a Model Y within a week. According to the United States website, buyers could get a Model 3 in as little as one month. Tesla buyers used to have to wait for several months before they could get their Model 3.