Analysis: Tesla Increases Electric Car Prices in the US; holds line in China

Jul 28 (Reuters) – Tesla Inc (TSLA.O) this week showed signs of divergent strategies in the world’s two largest auto markets by hitting prices to boost profit margins in the United States while keeping prices stable in China stayed and sales wanted to increase there.

Tesla raised prices for the cheapest versions of Model 3 and Model Y in the US about a dozen times this year, according to data tracked by Reuters. At the same time, Tesla recently presented a cheap Model Y version in China, where price reductions were waived. Continue reading

Tesla had record vehicle deliveries in the second quarter, and price increases in North America pushed quarterly earnings to a record high. Continue reading

However, in China, the world’s largest electric vehicle (EV) market, Tesla is facing stiff competition from local competitors and issues like product recalls, high-profile consumer protests and regulatory pressure.

Bernstein analyst Toni Sacconaghi said the launch of the lower-priced Model Y in China could “make it harder for Tesla to sustainably improve margins” and raise questions about “the health of Chinese demand.”

A study by Bernstein analysts found that Tesla owners in China were less enthusiastic and had fewer buyback intentions than owners in the US and Europe.

Tesla raised prices for the Model Y Long Range at least six times this year in the United States, increasing it by $ 5,500 to $ 53,990. In China, the world’s most valuable carmaker raised prices for the SUV Model Y and the Sedan Model 3 only once this year.

The Model Y version costs 276,000 yuan ($ 42,393.71). The company has also launched advertising campaigns such as loan offers in China.

“I think Tesla wants to be as competitive as possible in China. Lower prices will be part of this aggressive market positioning, ”said Craig Irwin, analyst at Roth Capital Partners. “There is a huge difference in battery prices in the US and China, and in local vehicle manufacturing costs.”

Tesla started production at its plant in Shanghai at the end of 2019. It has stepped up sourcing of cheaper local components, including batteries from China’s CATL (300750.SZ) and LG’s (051910.KS) Chinese plant.

“It wasn’t long since the company cut prices in the US to grow and maximize profitability, and it feels like we’re seeing that happen in China now,” said Nicholas Hyett. Hargreaves Lansdown analyst.

The low production costs for local electric vehicles in China would have a lasting impact on Tesla, said Gene Munster of Loup Ventures.

“Teslas are on average three times more expensive than a typical electric vehicle from China. So they have to be cheaper than in the US to be competitive,” said Munster. “Prices for Teslas in China will be below the rest of the world for the next ten years.”

Tesla also cut costs and increased margins in the US market by eliminating some parts like a radar sensor and lumbar support. Continue reading

CHINA LOSS OF MARKET SHARE

In China, Tesla’s share of the battery-electric vehicle market, which excludes plug-in hybrid cars, fell from 18% in the previous year to 11% in the second quarter, according to GLJ research. However, data from Morgan Stanley showed that Tesla still held nearly 70% of the US market share for battery power as of February, even though it was down from 81% the previous year.

China accounts for 44% of the global electric vehicle market, a much larger share than the United States’ 17%.

In China, Tesla faces competition from electric vehicle manufacturers such as Nio Inc (NIO.N) and Xpeng Inc (9868.HK). In the United States, Tesla’s brand is stronger, and its main competitors are old automakers like Ford (FN) and General Motors (GM.N), which generate only a fraction of their sales from electric vehicles.

GLOBAL CHIP SCARCE

Tesla CEO Elon Musk has reiterated that the company’s mission is to make electric cars affordable and has blamed the vehicle price hikes on a lack of chips and raw materials.

Tesla is addressing the chip shortage by using alternative chips and rewrite software, Musk said.

He gave a cautious outlook on the chip shortage. “It seems like it’s getting better,” he said on the second quarter conference call, but added, “It’s hard to predict.”

($ 1 = 6.5104 Chinese yuan renminbi)

Reporting by Eva Mathews, Subrat Patnaik, and Nivedita Balu in Bengaluru and Hyunjoo Jin in Berkeley, California; Editing by Peter Henderson, David Gregorio and Gerry Doyle

Our Standards: The Thomson Reuters Trust Principles.