After posting its most recent earnings “beat”, Tesla is taking on two starkly different strategies for its U.S. and its China business.
In the United States, the automaker is raising prices in an attempt to boost profit margins, while in China it is keeping prices steady in what is likely an attempt to drum up more demand, Reuters reported.
So far, Tesla has raised the price of its Model 3 and Model Y “about a dozen times” in the U.S. this year, the report notes. At the same time, the company also introduced an affordable version of its Model Y in China.
Tesla isn’t just facing increased scrutiny in China from its citizens and the government but is also running face-first into a wall of Chinese EV competitors.
Toni Sacconaghi of Bernstein has questioned demand in China as a result of the introduction of the lower-priced Model Y. He has said that the model “may make sustained margin improvement difficult”. Chinese owners were “were less enthusiastic and had lower repurchase intentions than owners in the United States and Europe,” a Bernstein survey recently showed.
Meanwhile, in the U.S., Tesla continues to raise the price of its Model Y long range, which is now priced at $53,990. In China, the more affordable Model Y is priced at $42,394.
Roth Capital Partners analyst Craig Irwin told Reuters: “I think Tesla is looking to be as competitive as it can be in China. Lower prices will be a part of that aggressive market positioning. There is a very large difference in battery prices in the U.S. and China, as well as local vehicle manufacturing costs.”
Hargreaves Lansdown analyst Nicholas Hyett added: “It wasn’t so long ago that the group was trimming prices in the U.S. to gain scale and maximize profitability, and it feels like we’re now seeing that in China too.”
Gene Munster at Loup Ventures attests that the lower prices in China could “have a lasting effect” for the company in the country: “Teslas are on average 3x the cost of a typical EV made in China so they have to be priced less than the U.S. to compete. Prices of Teslas in China will be below (the) rest of the world for the next decade.”
Tesla’s market share in China has fallen to 11% in the battery electric vehicle market. China makes up 44% of the global EV market.