Tesla mulling another Model 3 and Model Y price reduction in China over production capacity gap and subsidy expiration

While Tesla denied that it is preparing another round of Model 3 and Model Y price cuts in China, it said the same before the previous reduction, and yet went and lowered the starting tags of its most popular vehicles there by nearly 10%.

The same local publications that broke the news for the Tesla price cut before, now claim that "after two sales promotions, Tesla’s order increase is still lower than expected, and it will launch a new 'price reduction method' before the end of the year to boost sales."

Previously, such indirect methods included insurance discounts if you get it from Tesla's own stores, or offering a paid color option for free, which effectively lowered the purchase price further than the direct decrease. Still, the news about a second price cut is somewhat surprising given the reports about an uptick in orders that Tesla sales representatives started to receive in the days after the initial reduction. Some of them allegedly had to stay and work in the wee hours so as to manage the influx of new Model Y and Model 3 purchases, while Tesla immediately rescinded the offer for a free silver color upgrade.

That reaction must have tapered off quickly, as instead of the expected up to 170,000 new orders, Tesla reportedly only got about 50,000. In fact, after the manufacturing upgrade of the Gigafactory in Shanghai, Tesla is facing the largest ever gap between the increase in production capacity and the shrinking order backlog. Tesla made 87,706 vehicles there last month, while it fulfilled orders for just 71,704, and that includes exports.

Furthermore, the wait times for new Tesla cars have fallen from up to 4 months in the beginning of the year, to barely a few weeks now. If one orders a Model Y or Model 3 in China today, they are certain to receive it by year's end and will be able to take advantage of the part of government subsidies that expires in 2023.

Afterwards, some of Tesla's base vehicle trims won't qualify for the subsidy and their price will have to rise significantly if Tesla doesn't undertake another round of Model 3 and Model Y price cuts in order to respond to both the tepid demand and to the increased competition from local EV brands.

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