Tesla cuts China prices ahead of \`price war\`

Tesla has slashed starter prices for its Model 3 and Model Y cars by as much as 9 per cent  in China_ reversing a trend of increases across the industry amid signs of softening demand in the world's largest auto market.

The price cuts_ posted in listings on the electric vehicle giant's China website on Monday_ are the first by Tesla in China in 2022_ and come after Tesla began offering limited incentives to buyers who opted for Tesla's insurance last month.

The price cuts come after Tesla boss Elon Musk said last week that "a recession of sorts" was under way in China and Europe and Tesla said it would miss its vehicle delivery target this year.

Musk told analysts last week that demand was strong in the current quarter and said he expected Tesla to be "recession-resilient".

China Merchants Bank International (CMBI) said Tesla's price cuts underlined the growing competitive risk for EV makers in China_ with industry-wide sales projected 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.

Data on Monday showed retail sales in China grew 2.5 per cent in September_ below the expected 3.3 per cent rise and less than half August's 5.4 per cent growth.

Analysts are warning of a growing car inventory glut for autos in China_ where auto sales growth slowed in September while EV sales rose at their slowest pace in five months.

The U.S. automaker and several Chinese rivals have hiked prices several times since last year amid rising raw material costs. But Tesla has also regularly adjusted prices of its cars in China_ including reductions_ reflecting government subsidies.

Tesla told Reuters it was adjusting prices in line with costs. Capacity utilisation at its Shanghai Gigafactory has improved_ while the supply chain remains stable despite the impact on the economy of China's stringent zero-COVID restrictions_ leading to lower costs_ it said.

The starting price for the Model 3 sedan was reduced to 265_900 yuan ($36_727) from 279_900 yuan_ while that for the Model Y sport utility vehicle was cut to 288_900 yuan from 316_900 yuan_ the product prices listed on its Chinese website showed.

The average price for a new Tesla in the United States_ the EV maker's largest market_ has been climbing steadily since last year and was just under $70_000 in August_ according to research company Kelley Blue Book.

The car maker upgraded its Shanghai factory earlier this year in a development that brought the factory's weekly output capacity to around 22_000 units compared with levels of around 17_000 in June.

Tesla delivered 83_135 China-made EVs in September_ an 8 per cent increase from August_ and set an output record for the Shanghai factory since production began in December 2019.

CMBI analysts warned last week that 2023 would bring more competition to the EV sector_ saying that it expected to see sales growth for EVs and hybrids on a combined basis to drop below 50%.

Tesla is currently China's third best-selling EV maker after BYD Motor (002594.SZ) and SAIC-GM-Wuling (GM.N)(600104.SS)_ and is the only foreign player in the top 15 list published by the China Passenger Car Association.

CMBI said it expected that other automakers would need to cut prices on battery-electric and plug-in hybrid cars_ following Tesla's lead because of a projected increase in production capacity in 2023.