Breakingviews - Tesla's China price cut plays offence and defence - Reuters

HONG KONG, Oct 27 (Reuters Breakingviews) - Tesla’s (TSLA.O) China price cut is a double-edged sword. The $700 billion carmaker says lower production overheads prompted it to lop up to 9% off the cost of new vehicles in the country. But it also smacks of a price war.

The reduction is an aggressive manoeuvre. China is increasingly important for Tesla and its investors, accounting for around a quarter of the electric-car maker’s top line in the first nine months of 2022. If sales reach nearly $120 billion next year as forecast by Refinitiv, a 9% cut would equate to around $2.5 billion in revenue. But if it doesn’t affect the bottom line, it sends a strong message that Tesla is making use of its formidable economies of scale.

It is also a defensive move. Elon Musk’s marque remains China’s most popular foreign brand for battery-powered cars by a long chalk. Chinese drivers, though, are starting to snub international badges in favour of home-grown alternatives, especially for electric and premium models. Chery Automobile, Geely Automobile (0175.HK) and GAC (601238.SS) Aion are increasing their share of the EV segment, according to Bernstein. Shenzhen-based BYD (002594.SZ), (1211.HK) has taken Tesla’s top spot as the world’s best-selling brand of electric cars this year, thanks to triple-digit growth in sales of battery-powered and hybrid models, multiple research groups report.

At the same time, China’s car market could slow as incentives designed to gin up Covid-stricken sales wind down. And President Xi Jinping’s power play creates new risks. Hong Kong-listed shares in Nio (9866.HK), Xpeng (9868.HK) and Li Auto (2015.HK) lost an average 10% in value on Monday, the day after Xi picked members for his 24-strong Politburo who seem more focused on political control than economic growth. Nio and Xpeng have since rallied.

Price cuts are not the only sign of insecurity: Tesla faces up to the possibility of flagging demand, with Reuters reporting last month that Tesla is rethinking its China sales strategy, and keeping its vast Shanghai plant running below full capacity despite recent upgrades.

If others are also nervous, Tesla’s tactics and the chunky discount could set the tone. Smaller competitors such as Nio, which lack Tesla’s scale and profitability, have yet to make cuts and would struggle to take a huge hit to the top line. But larger groups such as Geely could retaliate. Musk might want to buckle up.

Follow @KatrinaHamlin on Twitter

loading

CONTEXT NEWS

Electric-car maker Tesla has cut starter prices for its Model 3 and Model Y cars by as much as 9% in China, reversing a trend of increases across the industry amid signs of softening demand in the world's largest vehicle market. The company posted the price cuts on its China website on Oct. 24.

Tesla told Reuters it was adjusting prices to reflect lower production costs, saying that capacity utilisation at its Shanghai Gigafactory has improved, while the supply chain remains stable despite the impact on the economy of China's stringent zero-Covid restrictions.

Tesla’s U.S. shares fell 1.49% to $211.25 on Oct. 24.

(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

Editing by Antony Currie and Thomas Shum

Our Standards: The Thomson Reuters Trust Principles.

Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.

Katrina Hamlin

Thomson Reuters

Katrina Hamlin is global production editor, based in Hong Kong. She is also a columnist, writing on topics including environmental policy, cleantech and green finance, as well as the gambling industry in Macau and Asia. Before joining Reuters in 2012, Katrina was deputy managing editor of Shanghai Business Review magazine. She graduated from the University of Oxford with an MA in Classics, and earned a Masters of Journalism with distinction from the University of Hong Kong.

Adblock test (Why?)

from "price" - Google News https://ift.tt/zy8rKeN
via IFTTT