Tesla changes gear again to escalate EV 'price war'

China's pure electric vehicle market has become the battleground for an escalating "price war" as automakers, including industry leader Tesla, announced further price reductions.

Tesla on Wednesday announced further price reductions on its official account on the Twitter-like Weibo that the new Model S/X now come with incentives, and all models are eligible for discounts ranging from 54,000 yuan (US$7,404) to 70,000 yuan.

The starting price of the Model S is now 754,900 yuan, down from 808,900 yuan, while the starting price of the Model X is 836,900 yuan, compared with the earlier 898,900 yuan. Tesla is also offering additional benefits, including three to six years of free supercharging, referral rewards, and limited-time FSD (full self-driving) transfer.

The move comes just two days after the company significantly lowered the prices of its Model Y series. On Monday, the American electric vehicle manufacturer slashed the prices of the Long Range and Performance versions of the Model Y in China by 14,000 yuan each. It also introduced an 8,000-yuan limited-time insurance subsidy for the Model 3.

The competitive landscape for Tesla in the Chinese market has undergone significant changes since the introduction of locally produced Model 3 vehicles.

Renewed price cuts

Unlike the price war at the beginning of the year, this round of reductions has been initiated by emerging EV brands and traditional automakers. About a dozen auto firms have proactively adjusted prices since the second half of this year to gain a competitive edge, with the peak of the price war occurring in August. This includes models from new energy vehicle (NEV) startups, established domestic brands, and joint ventures.

For example, on August 1, SAIC-Volkswagen announced price reductions of up to 60,000 yuan for nine of its SUV models, including both conventional cars and NEVs. Similarly, on the same day, Leapmotor Technology released price adjustments of up to 20,000 yuan for certain models of the Leapmotor C11 and C01.

Chery New Energy said on August 2 that the subsidies for its Little Ant, QQ Ice Cream and Wujie Pro models would be increased to a maximum of 10,000 yuan. On August 4, Ora under Great Wall Motors cut the prices of its Ora Good Cat GT, Good Cat and Lightning Cat models by up to 30,000 yuan. And on August 11, Zeekr 001 model posted a significant price reduction, with the price of the YOU version with a 100 kWh battery down by 37,000 yuan to a starting price of 349,000 yuan.

Industry experts believe that with the renewed price adjustments, more automakers will proactively lower their prices in the coming months. It seems that no major automaker has achieved half of their annual sales targets as of the first half of this year, which may be the main reason for their price reduction moves.

According to data from the China Passenger Car Association (CPCA), in July the retail sales of passenger cars in China reached 1.775 million units, a year-on-year decrease of 2.3 percent and a month-on-month drop of 6.3 percent. The retail sales of NEVs in July amounted to 641,000 units, up 31.9 percent from a year earlier but a month-on-month decline of 3.6 percent.

The CPCA stated that the significant promotions in the first half of the year disrupted the normal price trends in the automotive market. While terminal price promotions in July returned to normal levels overall, considering factors such as maintaining exposure, achieving annual targets, and generating sales momentum for the second half of the year, it is expected that some sub-markets will continue to have regular promotions.

"It is not ruled out that some automakers will engage in counter-cyclical intensification of promotions," the association said.

From the perspective of automakers, price reductions can often have an immediate impact on boosting sales. SAIC Volkswagen, for example, lowered the price for its ID.3 model in early July, and by the end of July, the monthly orders for the ID.3 had exceeded 10,000 units, with a single-day peak of 950 units, representing a month-on-month surge of 689 percent.

Similarly, NIO, which announced a price reduction of 30,000 yuan across its entire lineup in June, delivered in excess of 20,000 vehicles in July alone.

Zhou Wenyu, associate director of corporates at Fitch Bohua, previously said that fluctuations in commodity prices, disturbances in the supply chain, changes in the supply-demand pattern within the industry, or shifts in consumer preferences can all have an impact on the prices and sales of passenger vehicles.

"Behind the price wars among automakers lies the transformation of the automotive industry from traditional fuel-powered vehicles to the rise of EVs, reflecting the shift in old and new driving forces," she pointed out.

Additionally, since 2023, there has been a sharp decline in the price of lithium carbonate, a core material for power batteries, with the maximum decrease reaching over 70 percent at one point. "The significant drop in lithium carbonate prices has also provided some room for NEV manufacturers to 'exchange price for quantity'," Zhou added.

The CPCA noted that NEVs are the core direction for the transformation and development of automotive companies, and the market competition landscape remains unstable.

"Many automakers hope to further increase their share in the NEV market by reducing costs through scale expansion and occupying a dominant position in the market. We believe that in the second half of the year, automakers will focus more on improving the competitiveness of their products rather than simply lowering prices to expand the scale of the NEV market," it observed.