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Tesla Faces Stock Decline in China as EV Prices Drop


Tesla’s stock is experiencing a decline as the electric-vehicle (EV) company once again reduces prices in China. While EV sales continue to grow in the country, the market is becoming increasingly saturated with numerous auto manufacturers vying for a larger market share.

The prices of the Model Y and Model 3 have been reduced by 3% to 6%. The entry-level version of the Model Y crossover vehicle now starts at approximately $36,000, down from its previous price of about $37,000. Similarly, the base Model 3 now begins at about $34,500, compared to its previous price of $36,500.

As of Friday’s premarket trading, Tesla’s shares have dropped by 3.2%, whereas S&P 500 and Nasdaq Composite futures have decreased by 0.3% and 0.4% respectively.

In an effort to combat higher interest rates and heightened EV competition, Tesla embarked on an aggressive global price reduction strategy in 2023. Investors had hoped that the worst of these cuts were behind them, as the pace of price reductions had gradually slowed down throughout the year.

For instance, a rear-wheel drive Model 3 in the United States originally started at around $47,000 in 2022. However, this price was subsequently reduced to about $44,000 in January 2023 and further down to $40,000 by April. Following another slash in October, the price for a new U.S. Model 3 concluded the year at approximately $39,000.

These recent price cuts within the Chinese market will likely intensify concerns about competition and profit margins. Tesla reported an operating profit margin of almost 17% in 2022. However, this margin dropped to just under 10% in 2023 (including fourth-quarter estimates). Wall Street analysts are projecting a margin above 10% for 2024.

The Growth of Electric Vehicle Sales in China

Demand for electric vehicles in China continues to rise, with wholesale car-sales volume reaching approximately 25.4 million vehicles in 2023, up from 23.2 million in 2022. The sale of new energy vehicles (NEVs), which include plug-in hybrids and battery electric vehicles, saw a significant increase as well, reaching 8.7 million in 2023 compared to 6.5 million in 2022.

Looking ahead, sales are projected to continue growing. Citi analyst Jeff Chung forecasts a wholesale sales figure of 26 million vehicles in China by 2024, with NEVs accounting for 11.1 million units. Despite this favorable market environment, Tesla recently announced cuts in its operations without providing a clear explanation for the decision.

It is worth noting that China has an abundance of car makers, with dozens of companies selling thousands of NEVs each week. In contrast, the United States has only seven such companies.

In terms of market share, Tesla and BYD are the dominant players in China. Tesla’s wholesale volumes reached close to one million units, securing an 11% market share. On the other hand, BYD achieved wholesale volumes of around three million units, accounting for approximately 35% of the market.

While Tesla exclusively focuses on battery electric vehicles, BYD produces both BEVs and plug-in hybrids. In 2023, BYD sold approximately 1.6 million BEVs.

Despite experiencing price cuts in 2023, Tesla’s stock performed remarkably well, doubling throughout the year. However, it remains unclear whether the stock can replicate this growth in 2024 as further price cuts are expected.

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