Tesla just slashed the selling price of their cars sold in China in a move to stir up demand at the expense of some margin. Tesla bringing the price down of their model 3 to 229,900 yuan is a direct challenge to BYD most expensive and profitable model which is the seal model pricing now at 225,000 yuan
China demand issues
Tesla has always priced their cars in the luxury segment range because of their high demand giving them a high margin on each vehicle sales
However the latest figure showing tesla delivered 55,796 vehicles in December is a 44% decline in deliveries month over month clearing showing demand has fallen significantly which likely to have prompted Tesla cutting the selling price yesterday to spur up demand
Direct challenge to BYD
Before Tesla reduced the price of their cars in China, Tesla and BYD are not really direct competitors with Tesla dominating the above 250,000 yuan space and BYD below.
This all changed with Tesla moving towards left of the space with the price cut of their vehicles, officially brining themselves as a direct competition to BYD in that space.
Reduce margin, increase addressable market
We have to understand margin has always been high for Tesla with their excellency at ramping production, reducing their price is effectively passing production cost saving directly to customer.
As long as their giga factory is producing at full capacity and sales is able to meet demand, I would not be too worried and rather welcome the latest move by Telsa
In addition, this move expands the total addressable market of China having already dominated the luxury EV sector
Thoughts
BYD has always priced their EVs at low prices and operate at razor thin margin, starting a price war hurts BYD more than Tesla in the long term especially worse if government subsidies ends for BYD eventually.
Zooming out to a broader picture there is still room for both BYD and Telsa to grow with more and more take up of passenger EV at the expense of ICE vehicles, this is despite China already having the largest global passenger EV sales
We have to see how this move by Tesla pans out.
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