Bloomberg's report by Peter Verko on April 24, 2024
Evercore ISI warned in a new report that Tesla's price cuts in China could cost the automaker all of its operating profits in the world's largest electric vehicle market.
Evercore's Chris McNally wrote Monday that the automaker has the biggest profit margins in North America, and it also slashed its cars in North America over the weekend. In terms of EBIT, he said, Tesla's business in China "could now be break-even or even negative."
Tesla has also lowered prices in the U.S. and Germany after inventory ballooned due to disappointing sales in the first quarter. In China, the price of the facelifted Model 3 has dropped to 231,900 yuan (about 32,000 U.S. dollars) from 245,900 yuan previously, returning to the special price at launch. The discounted price of the Model Y is 249,900 yuan, which is the cheapest price in at least five years.
Tesla shares fell 4.8% before regular trading began. The stock has fallen 41% this year.
China's Li Auto Company reacted immediately with discounts and cashback on new models. The company has reduced prices by 6% to 7% across its entire product line, with the L7 sports utility vehicle starting at 301,800 yuan. Customers who have already ordered but have not yet picked up their cars will be able to enjoy the new prices, while NIO will offer cash discounts to existing owners of the 2024 model year. The automaker's Hong Kong-listed shares fell 8.3 percent to their lowest close in nearly a year.
The EV price war in China has been ongoing since Tesla began discounting it in late 2022. Competition has intensified as automakers struggle to meet sales targets, and there are few signs of abating this year. BYD's Seagull hatchback, for example, now costs less than $10,000.
When Tesla released its first-quarter earnings on Tuesday, it expected operating profit to plunge 40% and revenue to decline for the first time in four years. CEO Elon Musk has ordered the largest layoffs in the company's history and pinned the company's future on a next-generation self-driving car concept called robo-taxis.
Tesla's market share in China shrank to about 6.7% in the fourth quarter of 2023 from 10.5% in the first three months of this year, according to Bloomberg's calculations based on data from the China Passenger Car Association.
Bloomberg reported last month that the automaker recently scaled back production plans at its Shanghai plant. The Shanghai plant, which produces electric vehicles for China and exports to the rest of Asia, Europe and Canada, saw shipments fall in the first two months from a year earlier, even as overall passenger car sales in China also declined.