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Tesla Stock Falls as EV Prices Cut in China


Tesla stock is experiencing a decline as the company reduces prices once again in China. Despite the robust demand for electric vehicles (EVs) in the country, the market is becoming crowded with numerous automakers vying for a larger share.

Price Reduction for Model Y and Model 3

The prices of both the Model Y and Model 3 have been lowered by 3% to 6%. The base version of the Model Y crossover now starts at approximately $36,000, a decrease from around $37,000. Similarly, the base Model 3 now begins at about $34,500, down from $36,500.

Impact on Tesla’s Stock Performance

In premarket trading on Friday, Tesla shares fell by 1.8% to $223.29. In contrast, the S&P 500 and Nasdaq Composite saw gains of 0.4%. This decline in Tesla’s stock price may be attributed to the aggressive price cuts initiated across the globe in 2023, as a response to increased interest rates and heightened competition in the EV market. Investors initially hoped that the worst was over and that the rate of price reductions would slow down throughout the year.

Price Cuts Timeline

To illustrate the magnitude of these reductions, let’s consider the example of a U.S. rear-wheel drive Model 3. In 2022, this particular model had a starting price of approximately $47,000. By January 2023, the price was lowered to about $44,000, and further reduced to $40,000 by April. After an additional cut in October, the final price for a new U.S. Model 3 at the end of the year was approximately $39,000.

Concerns Regarding Competition and Profit Margins

The Growth of China’s Wholesale Car Sales

China’s wholesale car-sales volume continues to rise, reaching approximately 25.4 million vehicles in 2023, up from 23.2 million in the previous year. Notably, sales of new energy vehicles (NEVs), which include plug-in hybrids and battery electric vehicles, saw a significant increase as well, reaching 8.7 million in 2023 compared to 6.5 million in 2022.

Further growth is anticipated in the coming years. Analyst Jeff Chung from Citi predicts that wholesale sales in China will reach 26 million vehicles in 2024, with NEV units accounting for around 11.1 million of those sales. It remains unclear why Tesla needed to make cuts amidst this growth, as the company did not respond to requests for comment on the matter.

While China’s market is saturated with numerous car manufacturers, only a select few dominate. Tesla and BYD are the market leaders in the country, with Tesla selling nearly one million units and holding an 11% market share, while BYD sold approximately three million units, accounting for about 35% of the market. It is worth noting that Tesla exclusively produces battery electric vehicles, while BYD manufactures both BEVs and plug-in hybrids. In 2023 alone, BYD sold approximately 1.6 million BEVs.

Despite facing price cuts in 2023, Tesla’s stock performance remained strong, doubling throughout the year. However, whether the company can replicate such success in 2024 amidst further price reductions remains uncertain.

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