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Electric cars in China

Tesla cuts Model 3 price ahead of trial production in China

American EV maker seeks edge as local rivals face challenges

Tesla vehicles are parked outside of a building at the Zhongnanhai leadership compound during a meeting between Tesla CEO Elon Musk and Chinese Premier Li Keqiang in Beijing in January.   © Reuters

NEW YORK -- Tesla cut prices for its Model 3 sedans worldwide on Tuesday including in China, as the company readies trial production of the electric vehicle at its Gigafactory in Shanghai.

Tesla's China website shows that the starting price of its best-selling Model 3 has been lowered by 5.6% to 355,900 yuan (about $51,770).

A China-made version of the Model 3, which is available only by preorder as production is still pending, kept its price at 328,000 yuan (about $47,700).

That's still higher than the Model 3's U.S. starting price, which now stands at $38,990.

The American electric-vehicle maker is "adjusting our pricing in order to continue to improve affordability for customers," a spokesperson for Tesla said in a statement.

The global price cut could have particular significance in China, the world's largest electric-vehicle market, where Tesla faces increasing competition from local rivals including Nio and Xpeng Motors as well as the imminent phaseout of EV subsidies from the Chinese government.

However, Tesla's previous price cuts in China prompted a backlash including in March, when many customers who bought vehicles prior to the changes demanded compensation for the price difference.

Tesla's latest adjustment comes as Xpeng faces similar customer protests, after the Chinese EV startup priced its higher-performance new model, G3 2020, around the same level of its predecessor, G3 2019. Owners of the old model turned up in droves this month at Xpeng's headquarters in Guangzhou to protest, Chinese media reported.

Nio has been grappling with its own troubles. The EV maker announced a recall last month of nearly 5,000 ES8 units over battery safety concerns, and was reportedly hit with the departures of two executives recently.

Earlier this month, Tesla reported record deliveries in the second quarter of 2019, including 77,550 Model 3 units.

Christopher Eberle, an analyst at Nomura Securities, said Tesla's move may be an attempt to "create a pricing gap" between its low-end and high-end products, leaving a void for the automaker's incoming Model Y to fill.

Prices for Tesla's higher-end Model S and Model X now start slightly higher after Tuesday's adjustment.

Tesla is expected to start trial production of the Model 3 at its Gigafactory in Shanghai as early as September. The factory will have its first team of employees as of this month's end, Yicai reported.

China accounted for nearly 20% of Tesla's global sales in the first three months of 2019, the company's latest quarterly report says, the largest share outside of its home market of the U.S.

Morgan Stanley said in a research note this month that it expects China to account for less than 200,000 of Tesla's deliveries through 2020.

"While we anticipate significant pent-up demand for Tesla's locally produced vehicles" in China, "longer-term we expect the Chinese EV market to remain highly competitive and see Tesla's China volume peaking at [254,000] units in 2024, before falling to the [160,000] and [170,000] range by 2030," a group of Morgan Stanley analysts led by Adam Jonas wrote in the note.

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