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Electric cars in China

Tesla takes on Chinese rivals with new price cuts

US automaker eyes Lunar New Year buyers as Shanghai factory deliveries begin

Tesla this week began deliveries of its Model 3 sedan from its new factory in Shanghai.   © Reuters

HONG KONG -- U.S. electric automaker Tesla has lowered the price of its first China-produced model after starting deliveries this week amid a record slump in the country's car market, the world's largest.

The price cut will heighten competition between Tesla and local electric vehicle producers who have seen sales slow after the Chinese government slashed subsidies.

The price for Tesla's entry-level Model 3 sedan was lowered by 9% to 323,800 yuan ($46,000) compared with the previously announced price, according to Tesla's China website. Like a number of other local Chinese governments, Shanghai, where Tesla's production line is located, grants subsidies to buyers of electric vehicles. These bring the ticket price of a basic Model 3 sedan down to 299,050 yuan, cheaper than the basic SUV model of domestic maker Nio.

Analysts expect Tesla's price-cutting move to significantly boost sales during the shopping season ahead of Chinese New Year. Shanghai-based Nio, which also positions itself as a high-end electric vehicle brand, saw its pre-market trading drop as much as 7% in New York on Friday.

The Chinese company has had a run of negative news in recent months, including job cuts, the departure of senior management and financing difficulties. Its share price had plunged by more than half last year though it managed to recover modestly last month after reporting a narrowed loss in its latest quarter.

Tesla, meanwhile, is performing formidably in China. It has rolled 15 of its Model 3 sedans off the production lines at its Gigafactory 3 in Shanghai, which was built in just 10 months. Official deliveries to customers will start on Jan. 7.

"The price cuts will help Tesla quickly grab market share in China and push up the capacity of Gigafactory 3," said Feng Linyan, an analyst at Beijing-based research company EqualOcean.

Tesla's price reduction would capture demand ahead of Chinese New Year, as "Chinese customers tend to buy big-ticket items at the year-end", she said.

"Tesla has very big ambitions and a tough sales target in China. To achieve that target, a lower price is a direct way to generate a bigger potential consumer base," said Alan Kang, senior analyst at Shanghai-based consultancy LMC Automotive. He said the price cut will put "big pressure" on local Chinese players and on global giants who are increasingly shifting focus to the country's EV segment. 

Lixiang Automotive, a Beijing-based electric vehicle maker, has filed for an initial public offering in the U.S., aiming to raise at least $500 million, Reuters reported on Friday, quoting two people with direct knowledge of the matter.

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