On Thursday, Tesla Inc (TSLA.O) said it raised prices on some refreshed Model 3 and Model Y long-range vehicles in China, which could help protect margins after sales of the U.S. company’s best-selling models fell last month. According to its website and official Weibo account, the electric vehicle maker will increase the price of its Model 3 version in China by 1,500 yuan ($206). According to Reuters calculations, it will also raise the price of the Model Y version in China by about 6% to 13%.
This year, the yuan’s sharp weakening against the dollar has hurt global demand for EVs and pushed raw material prices higher, making them more expensive to produce. Analysts say that surging raw material costs could offset Tesla’s plans for mass-producing cheaper EVs.
In the past, Tesla lowered its price to spur demand for its cars. This helped the carmaker boost sales in Europe, where the Model 3 is one of its top-selling models. But it may be a different story in China, where rising inflation and economic uncertainty have made consumers cautious about big-ticket purchases like cars.
Investors are increasingly concerned that the slowdown in China’s economy could dampen demand for EVs. That would weigh on profit when other carmakers cut prices to stoke demand. The EV industry also faces rising labor and manufacturing costs, which have eaten into profits at some companies producing cars in Europe or China.
Despite its challenges, Tesla’s market share continues to rise. Its Gigafactory in China produces 80,000 cars monthly, 40% of those sold in Europe. However, Tesla’s e-cars are still significantly more expensive than rivals in the region, which could limit its ability to compete for market share and profit.
Sales of Tesla’s China-made EVs fell 31% in July from June, marking the first month-on-month decline for the country’s largest car market this year. Tesla is expected to show a refreshed version of the Model 3 at this week’s Munich auto show, likely to be priced similarly to its competitors in the country.
Tesla’s upcoming updates to the Model 3 and Model Y include more extended battery range, better acceleration, and an improved interior. The company has also reduced the number of variants available for each model to simplify production and offer more choices to consumers.
However, investors will likely be focused on whether Tesla can maintain its profit margins amid a challenging business environment. The carmaker is counting on its software and subscription offerings to offset declining EV sales and EV tax credits in the United States and China. It also relies on its factory to keep costs down and ramp up production at a pace that can support the growth of its EV business worldwide. The company’s latest pricing changes underscore its challenges in achieving those goals.
