Tesla Slashes Model Y Prices in China, Raises Concerns Over Profit Margins

The Model Y Long Range's price was lowered by 4.5% to 299,900 yuan, while the starting price of the Model Y Performance decreased by 3.8% to 349,900 yuan.

Tesla (TSLA.O) announced a reduction in prices for its Model Y long-range and performance versions in China, effective from August 14.

However, this move raised concerns about potential impacts on the company’s profit margins, leading to a decline in Tesla’s shares.

The starting prices of both the Model Y Long Range and Model Y Performance were lowered by 14,000 yuan ($1,934.58).

The Model Y Long Range’s price was lowered by 4.5% to 299,900 yuan, while the starting price of the Model Y Performance decreased by 3.8% to 349,900 yuan.

Concurrently, Tesla disclosed its intention to provide insurance subsidies in China.

Between August 14 and September 30, purchasers of the entry-level, rear-wheel-drive versions of Model 3 vehicles from inventory will receive an insurance subsidy of 8,000 yuan.

This decision comes in the wake of previous price cuts by Tesla last month, despite its prior commitment, alongside other Chinese companies, to refrain from “abnormal pricing.”

Such actions were interpreted by some as a sign of a truce in the industry’s ongoing price wars, which have posed challenges to overall profitability.

Chris McNally, an analyst at Evercore ISI, predicted that comparable price reductions might also emerge in the U.S. and Europe.

These reductions could potentially exert around 100 basis points of sequential pressure on Tesla’s margins for the third quarter.

Consequently, Tesla’s shares experienced a 2.7% drop, reaching a more than two-month low of $236.15 during early trading.

Elon Musk, Tesla’s CEO, had previously indicated the possibility of further price cuts, even if it meant squeezing the company’s profit margins.

Observers from Deutsche Bank also speculated that the forthcoming launch of a refreshed Model 3 in China (referred to as Project Highland) might prompt price adjustments for the outgoing version.

Tesla’s strategy of recurrent price reductions, seen across the United States, China, and other markets since the latter part of the previous year, is an attempt to counter competition and economic uncertainties while managing inventory levels.

Notably, the data from the China Passenger Car Association (CPCA) revealed that Tesla’s China-made vehicle sales suffered a 31% decline in July compared to June.

This marked the first instance of a month-on-month sales decrease since December.

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