Is Tesla Losing Ground in China’s Electric Vehicle Market?

Chinese factories further reduce production
Tesla Model Y’s surprise decision
What is behind the revision of the production strategy?

Tesla has reduced Model Y production in the Chinese market. According to Reuters, Tesla has reportedly reduced Model Y production at its Shanghai factory by a double-digit percentage since last March. Afterwards, the company plans to reduce Model Y production at its Shanghai factory by at least 20% by the end of June 2024.

Tesla’s move is a response to the Chinese market’s slowdown in demand for electric vehicles. China’s EV market is evaluated as a battleground with everyone from BYD, the number one player in the Chinese industry, to various small and medium-sized companies. There is no hesitation in fierce competition to survive in the market.

Fierce Price Competition in China
Model Y’s Price Dropped, but…

Previously, BYD cut the price of its electric vehicles in the Chinese market by as little as 5% to as much as 20%. Accordingly, Li Auto and Tesla also began to reduce prices. In April 2024, Tesla lowered the price of Model Y in the Chinese market from $33,895 to $31,965, a reduction of $1930.

Despite the price cut, Model Y’s sales in the Chinese market were low. According to data from the China Passenger Car Association (CPCA), Tesla sold 62,167 Chinese electric vehicles in April 2024. This is a decrease of 18% compared to the same period last year. Sales volume also decreased by nearly 30% compared to the previous month. On the other hand, competitor BYD’s sales increased by 50% in April 2024.

Chinese companies target Tesla
Compare it to Model Y

Price competition was fierce, but Chinese EV companies aimed at Tesla. Nio’s brand, Onvo, mentioned Tesla during a recent showcase of the electric SUV L60. When Onbo unveiled the L60, it directly compared the vehicle to the Model Y.

The Tesla Model Y was compared in detail with the L60 in price, interior space, driving distance, and air resistance coefficient to emphasize its strengths. The L60 was launched for $30,187, which is $4,135 cheaper than the Model Y. In addition, Onvo emphasized that the L60 has a length of 78 mm (3.1 inches) and a wheelbase that is 90 mm (3.5 inches) longer, giving it an advantage over the Model Y in terms of interior space.

Leading to a bloody competition
Tesla’s strategic policy is?

Chinese EV companies are continuing to compete fiercely for survival. Securities firm Goldman Sachs analyzed that since July 2023, profits from EV sales in China have decreased from $289.5 per vehicle to $220.1. However, companies are in the position that even if profits decline, they have no choice but to lower prices due to slowing demand.

If this pricing policy continues, there is a forecast that small and medium-sized companies will be forced out of the EV industry. Tesla also cannot continue to adhere to its price reduction policy, as securing profits is essential to continue sales in the Chinese market. Although the situation in the Chinese market has worsened over time, Tesla has maintained no change in its existing goals. As the Chinese market is the second largest for Tesla after the US, the company plans to hold its sales target of 600,000 to 700,000 units in the Chinese market, scheduled for early 2024.