Tesla has reduced starting prices for its Model 3 and Model Y cars in China by up to 9 per cent, reversing an industry-wide trend of increases amid signs of weakening demand in the world’s largest auto market.

The price reductions, which were posted on the electric vehicle (EV) giant’s China website on Monday, are Tesla’s first in China in 2022, and come after the company began offering limited incentives to buyers who chose Tesla’s insurance last month.

The price reductions come after Tesla CEO Elon Musk said last week that “a sort of recession” was underway in China and Europe, and Tesla announced that it would miss its vehicle delivery target this year.

Last week, Musk told analysts that demand was strong in the current quarter and that Tesla would be “recession-resistant.”

According to China Merchants Bank International (CMBI), Tesla’s price cuts highlight the growing competitive risk for Chinese EV makers, with industry-wide sales expected to slow into 2023.

“The price cuts underscore the possible price war which we have been emphasising since August,” said Shi Ji, an analyst with CMBI.

According to data released on Monday, retail sales in China increased 2.5 per cent in September, falling short of the expected 3.3 per cent increase and falling short of August’s 5.4 per cent increase.

Analysts are warning of a growing car inventory glut in China, where auto sales growth slowed in September and EV sales rose at the slowest rate in five months.

Because of rising raw material costs, the American automaker and several Chinese competitors have raised prices several times since last year. However, Tesla has regularly adjusted its car prices in China, including reductions to reflect government subsidies.

Tesla told the media that it was raising prices to reflect rising costs.

According to the company, capacity utilization at its Shanghai Gigafactory has improved, while the supply chain has remained stable despite the economic impact of China’s stringent zero-COVID restrictions, resulting in lower costs.

The Model 3 sedan’s starting price was reduced from 279,900 yuan to 265,900 yuan ($36,727), while the Model Y sport utility vehicle’s price was reduced from 316,900 yuan to 288,900 yuan, according to product prices listed on its Chinese website.

According to research firm Kelley Blue Book, the average price for a new Tesla in the United States, the EV maker’s largest market, has been steadily rising since last year and was just under $70,000 in August.

Tesla upgraded its Shanghai factory earlier this year, increasing the factory’s weekly output capacity to around 22,000 units, up from around 17,000 in June, according to Reuters.

Tesla delivered 83,135 China-made EVs in September, an 8% increase over August, and set a Shanghai factory output record since production began in December 2019.

Last week, CMBI analysts cautioned that 2023 would bring more competition to the EV sector, predicting that sales growth for EVs and hybrids combined would fall below 50 per cent.

Tesla is currently China’s third best-selling EV manufacturer, trailing only BYD Motor and SAIC-GM-Wuling, and is the only foreign player among the top 15 listed by the China Passenger Car Association.

Because of a projected increase in production capacity next year, CMBI predicted that other automakers would be forced to lower prices on battery-electric and plug-in hybrid vehicles, following Tesla’s lead.

(Adapted from Latestly.com)

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