Tesla slashed prices in China due to the trade war and now it has become more clear why the automaker decided to bite the bullet. A report shows that its sales have crashed to just a few hundred cars in the country last month.
According to the country’s passenger car association via Reuters, Tesla delivered only 211 cars in China last month – down 70% over the same period last year.
Update: Tesla says that the passenger car association’s numbers are not accurate, but it refused to confirm the numbers:
“This is wildly inaccurate. While we do not disclose regional or monthly sales numbers, these figures are off by a significant margin.”
In previous years, Tesla has been growing extremely fast in China, which has become the largest auto market in the world.
Last year, Tesla made over $2 billion in China – doubling its sales and expanding its retail presence and charging infrastructure.
The sales crash is believed to be related to the trade war between China and the US, which has resulted in a new 40% tariff on U.S. vehicles being imported into China.
In July, Tesla had to increase the price of Model S and Model X by over $20,000 in China due to new trade-war tariffs.
Last week, the automaker announced that it is reducing the prices of its vehicles in China by 12 to 26% and absorbing the difference.
It looks like we now have the clear reason why Tesla was willing to drop prices: its sales seem to have stopped to a crawl (at least for the market).
Now it’s important to note that due to Tesla making vehicles in batches for different markets and transit times to get cars to China, sales can fluctuate greatly month-to-month in the country.
That said, just over 200 cars still seem extremely low for China at this point.
It looks like the new tariffs have indeed hit the company’s demand hard in China and they are now willing to significantly reduce their gross margins in order to keep some market share.
Considering how important of a market China has been over the last year, I’m curious to see if Tesla is going to change its profitability guidance following these changes.
Personally, I think investors would be OK with it if it means that Tesla focuses on its plan to build Gigafactory 3 in China and start producing cars in the country to get around the tariffs.
It might become the first car factory wholly owned by a foreign automaker in the country and that’s a big deal.
Either way, I think 2019 is going to be an interesting year for Tesla in China.
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