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Tesla cuts China prices up to 9% as analysts warn of 'price war'

CEO Elon Musk points to 'recession of sorts,' warning of missed delivery goal

Electric vehicle maker Tesla is cutting prices for two of its popular models in China as signs point to weakening demand in the world's largest auto market.

SHANGHAI (Reuters) -- Tesla has cut starter prices for its Model 3 and Model Y cars by as much as 9% in China, reversing a trend of increases across the industry amid signs of softening demand in the world's largest auto market.

The price cuts, posted in listings on the electric vehicle (EV) giant's China website on Monday, are the first by Tesla in China in 2022, and come after Tesla began offering limited incentives to buyers who opted for Tesla's insurance last month.

The price cuts come after Tesla Chief Executive Elon Musk said last week that "a recession of sorts" was underway in China and Europe and Tesla said it would miss its vehicle delivery target this year.

Musk told analysts last week that demand was strong in the current quarter and said he expected Tesla to be "recession-resilient."

China Merchants Bank International (CMBI) said Tesla's price cuts underlined the growing competitive risk for EV makers in China, with industrywide sales projected to slow into 2023.

"The price cuts underscore the possible price war which we have been emphasizing since August," said Shi Ji, an analyst with CMBI.

Data on Monday showed retail sales in China grew 2.5% in September, below the expected 3.3% rise and less than half August's 5.4% growth.

Analysts are warning of a growing car inventory glut for autos in China, where auto sales growth slowed in September while EV sales rose at their slowest pace in five months.

The U.S. automaker and several Chinese rivals have hiked prices several times since last year amid rising raw material costs. But Tesla has also regularly adjusted prices of its cars in China, including reductions, reflecting government subsidies.

Tesla told Reuters it was adjusting prices in line with costs. Capacity utilization at its Shanghai Gigafactory has improved, while the supply chain remains stable despite the impact on the economy of China's stringent zero-COVID restrictions, leading to lower costs, it said.

The starting price for the Model 3 sedan was reduced to 265,900 yuan ($36,727) from 279,900 yuan, while that for the Model Y sport utility vehicle was cut to 288,900 yuan from 316,900 yuan, the product prices listed on its Chinese website showed.

The average price for a new Tesla in the United States, the EV maker's largest market, has been climbing steadily since last year and was just under $70,000 in August, according to research company Kelley Blue Book.

Tesla upgraded its Shanghai factory earlier this year in a development that brought the factory's weekly output capacity to around 22,000 units compared with levels of around 17,000 in June, Reuters previously reported.

Tesla delivered 83,135 China-made EVs in September, an 8% increase from August, and set an output record for the Shanghai factory since production began in December 2019.

CMBI analysts warned last week that 2023 would bring more competition to the EV sector, saying that it expected to see sales growth for EVs and hybrids on a combined basis to drop below 50%.

Tesla is currently China's third best selling EV maker after BYD Motor and SAIC-GM-Wuling, and is the only foreign player in the top 15 list published by the China Passenger Car Association.

CMBI said it expected that other automakers would need to cut prices on battery-electric and plug-in hybrid cars, following Tesla's lead because of a projected increase in production capacity next year.

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