Electric vehicle (EV) maker Tesla (NASDAQ:TSLA) has cut the prices of two higher-end Model Y vehicles in China by 14,000 yuan, starting Monday, August 14. The latest round of price cuts comes as the competition in the Chinese market is heating up, weighing on Tesla’s sales in the world’s largest EV market.
The company also announced insurance subsidies of 8,000 yuan for buyers of the entry-level, rear-wheel-drive versions of the Model 3 vehicles. This offer will be applicable on purchases made between August 14 and September 30.
Tesla Attempts to Boost China Sales
Tesla announced a reduction in the prices of its Model Y Long-Range and Performance versions in China by 14,000 yuan to 299,900 yuan and 349,900 yuan, respectively. These price cuts reflect a drop of about $1,930 or 4%. The company triggered a price war in the U.S., Europe, and China with multiple rounds of price cuts since late 2022.
Tesla is facing intense competition from domestic players in China, including BYD (BYDDY) and Nio (NYSE:NIO). After initially stating that it wouldn’t cut prices, Nio finally joined the ongoing price war in the Chinese EV market by slashing prices by 30,000 yuan across all models in June.
The July sales report for the Chinese EV market clearly shows the impact of macro pressures and rising competition on Tesla. According to the China Passenger Car Association (CPCA), the company’s China-made EV sales declined 31% to 64,285 units in July compared to June. Nevertheless, sales were up 128% on a year-over-year basis.
Several analysts have been vocal about their concerns about the impact of price cuts on Tesla’s margins. However, during the Q2 2023 earnings call, Tesla CEO Elon Musk said that the short-term impact of price cuts on gross margin and profitability is “minor relative to the long-term picture.”
Is Tesla a Buy, Hold, or Sell?
Reacting to the sequential decline in Tesla’s July deliveries, Bank of America analyst John Murphy said in a research note last week that the demand reversal suggests that the initial gains fueled by the price cuts in December 2022 seem to be temporary. He thinks that the price cuts implemented in late 2022 in China might have pulled forward demand rather than driving additional volumes.
Murphy added that the month-over-month rise in the EV sales of Tesla’s closest rival in China, BYD, indicates that lower demand for Tesla vehicles was not due to broader macroeconomic factors in China.
Murphy reiterated a Hold rating on TSLA stock with a price target of $300.
Wall Street is sidelined on Tesla, with a Hold consensus rating based on 10 Buys, 13 Holds, and five Sells. The average price target of $253.77 implies 4.6% upside. Shares have risen 97% year-to-date.
