Photo: Jay in Shanghai/Twitter
Tesla has lowered the prices of Model Y and Model 3 in China, which will lead to a significant increase in sales in the country in Q4 2022. Domestic sales will actually reduce the burden on logistics and lead to higher earnings per share in Q4.
Tesla's Chinese customers are very pleased today, as the manufacturer has reduced the price of its cars sold in the domestic market. This led to a significant increase in demand and caused the manufacturer's website to crash for a while due to the large number of users wanting to place an order immediately.
The cost of Model 3 RWD has dropped from RMB290,988 to RMB279,888. The cost of Model 3 Performance saw a price reduction from RMB376,900 to RMB349,900. Model Y RWD can now be purchased for RMB299,988, down from RMB316,900 previously. The price of Model Y Long Range is now RMB349,900, down from RMB357,900 before. Model Y Performance’s price dropped from RMB417,900 to RMB397,900. All prices exclude incentives, and after receiving them, the price will decrease by about RMB11,000. However, only vehicles below RMB300,000 are eligible for the incentive.
Analysts and some investors panicked at the company's move and completely ignored all the information that is in the public domain that indicates that Tesla will benefit significantly from the cost reduction in China. This led to a decline in the value of the manufacturer's shares. However, there are a number of factors that indicate that lowering car prices for the Chinese market should not be a cause for concern.
First of all, we should pay attention to the fact that after the modernization of Giga Shanghai in the summer, the factory has significantly increased its production capacity. While the company has not made any official announcements, multiple sources indicate that production capacity has risen to around 90,000 vehicles per month. This allows it to fulfill existing orders much faster.
The increase in production, primarily driven by Giga Shanghai in Q3 2022, meant that Tesla was unable to deliver all vehicles to customers by end of quarter. According to the data, about 20,000 undelivered vehicles remained on their way to customers. The company's executives explained that they encountered difficulties in logistics and simply did not have enough ships, trains, and trucks to deliver such a large number of vehicles on time. Thus, an increase in demand in China will help cars be distributed in the country over the entire quarter instead of at the very end of the quarter. And in turn, the overall load on ship transportation to various other countries around the world will be reduced. This will then allow Tesla to deliver more vehicles in Q4 and, even with reduced prices, will ultimately yield higher earnings per share.
In addition, Tesla is not experiencing a decline in demand, and is unlikely to experience it in the foreseeable future, Elon Musk noted during the Q3 Earnings Call. It is very important to listen to the company's executives who have the best idea of the number of existing orders. At the moment, electric vehicles make up only 5% of the car market share and have a long way to go to 100%. Since Tesla offers the best value for money in the industry, there should be no doubt that in the coming years, the company will have the highest demand.
© 2022, Eva Fox | Tesmanian. All rights reserved.
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