Tesla (TSLA) stock slipped on Monday as the automaker once again cut prices in China, signaling demand erosion for its EVs on the mainland.
As first reported by Reuters, Tesla announced it had cut the price of its Model Y Long Range SUV and Performance version by 14,000 yuan ($1,934.58), with the Long Range version’s price dropping by 4.5% to 299,900 yuan ($41,435), and the Performance model dropping by 3.8% to 349,900 yuan ($48,460). The new prices were posted by Tesla via its Weibo account.
In the same announcement, Tesla also said it will offer an insurance subsidy of 8,000 yuan ($1,108) for its entry-level Model 3 in China from August 14 through September 30th.
Tesla’s latest price cuts reflect an erosion of demand in China, the largest EV market in the world, and appear to violate an agreement Tesla made with other automakers for a price truce, which officials said aimed to maintain fair competition on the mainland.
The agreement was the result of Tesla initiating an EV price war in China late last year — and into early this year — with steep price cuts for its Model Y SUV and Model 3 sedan that forced competitors like BYD and Xpeng to follow suit. The price cuts were so severe, and abrupt, that many Chinese Tesla buyers protested outside Tesla showrooms and delivery centers, demanding refunds.
Despite the truce, it seems Tesla needed to cut prices again in order to boost sales, where deliveries slumped 31.4% to 64,285 units in July, according to data published by China’s Passenger Car Association (CPCA). July’s delivery total was Tesla’s lowest of the year in China.
Tesla’s margins - which will shrink due to price cuts - are a concern for investors, as the company’s stock took a hit following second quarter results in late July. Despite a strong earnings and revenue beat for the quarter, shares slumped after gross margins came in at 18.2%, missing analyst expectations for 18.8%. Tesla's operating margin also fell below 10% to 9.6%, which is nearly 5% below what it was a year ago.
Wall Street seems to believe the discounting of Tesla vehicles in China and elsewhere will continue, and margins will continue to suffer.
“We believe Tesla will need to further reduce pricing and/or increase promotional activity this year and/or next year, incrementally pressuring margins,” Bernstein analyst Toni Sacconaghi wrote in a note to clients last month.
Pras Subramanian is a reporter for Yahoo Finance. You can follow him on Twitter and on Instagram.
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