Tesla to Cut Model 3 Price in China to Qualify for Subsidies

(Bloomberg) -- Tesla Inc. will cut the price of its standard-range Model 3 in China for the second time this year so it can continue to qualify for government rebates on electric vehicles that are being tightened.

The move will drop the price of the sedan below the 300,000 yuan ($42,400) maximum threshold for electric cars in China to qualify for subsidies, Chief Executive Officer Elon Musk said. Model 3s built at Tesla’s factory near Shanghai had started at 323,800 yuan before tax breaks or rebates. Bloomberg News reported earlier that the company was considering the reduction.

“We are making rapid progress on lowering the production cost in China,” Musk said during Tesla’s quarterly earnings webcast, adding he’s confident the vehicle will still deliver “good” gross margin.

Tesla’s price cut could coincide with the company’s introduction of Model 3s equipped with cheaper batteries from local supplier Contemporary Amperex Technology Co. Ltd., a person familiar with the matter said earlier. Representatives for Tesla and CATL declined to comment.

Tesla has been planning since last year to reduce prices in the world’s largest EV market by increasing the proportion of local components and reducing costs. The government is making it harder for cars to qualify for subsidies through criteria including price caps, adding urgency to the reductions. In January, the company lowered the China-made Model 3s starting price by 9%.

For Tesla, which began making cars in China this year, qualifying for the rebates would help it stay competitive against local rivals and global giants such as Volkswagen AG, which are also debuting new models in a market that was already declining before the coronavirus hit consumer demand. Government subsidies, which can knock thousands of dollars off a car’s sticker price, have become more critical in sustaining EV sales than authorities had anticipated.

A reduction in the benefits last year triggered a downturn in sales that the industry has yet to recover from. This year was supposed to be a watershed for China’s EV market, with the likes of national champion BYD Co., Daimler AG and General Motors Co. scheduled to roll out new models and open plants in China, where the government has staked its claim on being the global leader in electrification. Then the coronavirus short-circuited demand for cars of every sort and left EV makers with, at best, a dream deferred.

Registrations of Tesla vehicles in the country climbed to a record in March after dropping sequentially for two consecutive months amid a broader market slump that has been exacerbated by the coronavirus outbreak.

Cost of Buying a Tesla Entry-Level Model 3 in China Today
Sticker Price323,800 yuan
EV Rebate-20,250 yuan
Sales Tax (Waived for EVs)0 yuan
Purchase Price303,550 yuan
Note: Excludes insurance fees

China announced it would extend tax breaks and subsidies on EV purchases for two years to provide relief for the struggling industry in the wake of the pandemic. But the subsidies will be lowered and the universe of cars that qualify for the discounts will be narrowed as the government seeks to gradually phase out handouts.

Some of the rebate reductions began in April and will be tightened in the summer. That’s already spurred an increase in post-subsidy prices that consumers pay for the cars.

©2020 Bloomberg L.P.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.