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What is the cheapest way to buy a Tesla? Buy it in China. Some models are now half the price in China compared with Europe and the US. The US electric-car maker is leading a cut-throat price war among EV makers in China. It is upending the world’s largest car market.
Tesla launched another round of price cuts on Monday. High-end, long-range versions of the Model Y sport utility vehicle dropped by Rmb14,000 to as low as Rmb299,900 ($41,300). Other models are even cheaper when an extended insurance subsidy is accounted for.
Tesla has slashed prices several times in China. The most recent round was last month. The difference this time has been a significant sell-off in local automaker stocks. Shares in China’s biggest EV maker BYD have dropped more than 5 per cent. Smaller peer Leapmotor Technologies is down 6 per cent.
The price war is partly the result of overcapacity. There were more than 500 registered EV makers in China back in 2019. Their prospects appeared to be underpinned partly by low costs. Purely indigenous businesses were not the only contenders. Byton, a Chinese-German electric vehicle brand co-founded by former BMW and Nissan executives, also bet big on China.
Four years later, the picture is bleaker. About 400 of the EV makers have disappeared. Two promising local makers that investors had expected to become China’s Teslas, Li Auto and Xpeng, still run on negative operating margins. BYD, which has become the world’s largest EV maker by sales, still has margins below 5 per cent despite record sales numbers this year.
Customers had been expected to buy Chinese for patriotic reasons. Instead Tesla’s popularity has continued to soar. The company is intent on locking in steep market share. Its sales hit a record in the second quarter.
Local manufacturers have little choice but to cut prices faster and deeper than Tesla. Defensive consolidation is inevitable. It is a good time for investors to cut holdings further.
Lex is the FT’s concise daily investment column. Expert writers in four global financial centres provide informed, timely opinions on capital trends and big businesses. Click to explore
