Tesla Swoosh Chinese Market With 50% Discount On All Evs

Tesla slammed its rivals in the Chinese market after giving a 50% discount on all its Electric cars. The move has created havoc in the global automobile market.

The announcement comes weeks after Musk Owned Tesla announced plans to cut down production costs up to 50%.

Two months ago, Tesla dropped its prices by a dramatic 20%, but the new announcement has left its rivals gawking, creating a slur in the market. Moreover, Tesla’s new move forces competitors to follow suit to survive in the highly competitive Chinese market.

But the surprising part is Elon Musk’s “discount scheme” since Tesla always followed the “no-discount” suit. To add to the shock, more than half of Tesla’s stocks are held as collateral for loans.

So why and how is Tesla affording to slash prices so drastically? Read the article to find out.

China is the world’s largest producer and consumer of Electric Vehicles.

Over the past decade, the growth of the Chinese EV segment has been phenomenal, but the breakeven point was the pandemic.

 Before the pandemic, 85% of the Chinese market was controlled by domestic players.

But post-pandemic, temped by the mammoth potential, China became the playground for all the international EV players to compete.

As a result, the sales of BEV multiplied 2.5 times, from 2 million sales in 2020 to 5 million sales in 2022. The numbers are further expected to touch 10 million sales by 2025.

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Tesla has turned the tables:

Companies are trying to sway Chinese consumers to harness the maximum profits from the Chinese market. As a result, the EV price war began.

Morgan Stanley analysts say, “Texas-based EV company- Austin EV initiated price war, snowballing market reshuffle.”

But today, Tesla is leading the way with an almost 50% discount on all-electric vehicles, introducing commotion in EV industry. In the highly competitive Chinese market, Tesla’s move forces rival to change their marketing strategies.

The counteraction:

In counteraction, more than 30 other EV manufacturers have reluctantly discounted their EVs, Bloomberg articulated.

Tesla’s major Chinese rivals- Nio, Xpeng, and Li Auto Inc. are three of the largest Chinese automakers in EV segment. The trio and international players like Wolksvagon and Mercedes Benz are among the few to add to the numbers. To counteract Musk’s move, Mercedes gave discounts as high as $10,000 in China.

As per HT auto, the Chinese Association and Automobile manufacturers called to end the unhealthy price war. As per media reports, slashing prices is a short-term solution to stay on top. However, car-makers should strive for long-term sustenance.

How Tesla affords hefty discounts:

As per Forbes, Tesla is one of the six companies owned by Tesla. Musk owns 23% of Tesla’s stocks but has pledged half of the stocks as loan collateral. But the major advantage of Tesla over its rivals is the manufacturing costs. 

Cut on manufacturing costs:

In 2017, manufacturing an EV amounted to $84,000 for Tesla. In 2021, the same cost was down to just $36,000. The dramatic reduction is a result of cutting assembly costs and eliminating redundancies.

But Musk does not plan to stop here.  

On the first day of March, Musk assured its investors of cutting assembly costs of future cars, making up to 50% again.

 In an hours-long presentation with the investors, Chief Engineer at Tesla- Lars Moravy, stated that the next generation of Tesla’s Model 3 and Model Y cars would be manufactured at half the current cost.

Further explaining the details, Moravy said that the new assembly model is “Unboxed”, which will club complicated sub-assemblies to cut on assembly time and cost.

Impressed by the next-gen assembly model, Tesla’s high-profile investor Ross Gerber twitted, “Tesla is coming with next-gen of EV. When implemented, an EV will just cost $25-30k”.

Tesla is now a blue-chip company:

On Monday this week, Moody’s investors’ services announced Tesla as a blue-chip company. In addition, the company was given a “Baa3” rating, bringing home global recognition to Tesla.

A blue-ship company is a well-established and financially stable company that is well-trusted by investors. 

And apart from Investors backing Tesla, hefty car discounts are compensated by Tesla's 2 million/ year production capacity, which Tesla plans to increase 10 folds by the end of the decade.

So, to deliver on the dream, it is essential to target and capture critical markets like China.

Earn in Europe, Spend in China:

To set a firm foot in the highly competitive Chinese market, slashing prices is the key. But the same does not apply everywhere.

As per international analytics company- Statista- this year, Tesla’s maximum revenue share will be generated in the US (US$16,260 Million). The US will be followed by Iran, Netherlands, Canada, and Israel in estimated annual revenue generation for Tesla.

Eco-friendly approach:

Global economies are placing their bet on electric vehicles to deliver on the dream of carbon neutrality by mid millennia. With no dependency on conventional fuel, EVs have the potential to take us a step closer to carbon neutrality.

Tesla is playing its part in raising the benchmark.

As per cooler future’s article, Tesla emits only 34% of the emissions compared to Toyota for every mile on the road.

Conclusion:

With the price-slashing tactic, Tesla is dominating its competitors and influencing Chinese consumers. 

The cost-cutting model is effective in bringing down manufacturing costs. But, discounting EVs to capture the market is a solution only until a new player with a lower price enters the market. 

Tesla should reduce assembly costs to build a sustainable future for the company and the world.

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