Tesla, Inc. (NASDAQ: TSLA) is possibly considering cutting the price of its China-built Model 3 sedans by 20% or more next year, according to Bloomberg, citing sources familiar with the matter.
Tesla shares were trading 2.01% or at USD 386.60 per share on Wednesday morning.
The Company is aiming to lower its costs by using more local components, allowing it to import fewer parts and avoid tariffs, the sources said.
Prices of the vehicles, which will be built in Tesla’s new Shanghai factory and start at 355,800 yuan (USD 50,800), will probably be lowered from the second half of 2020, the sources noted.
Tesla Chief Executive Officer Elon Musk is anticipating its Shanghai gigafactory outside of the U.S. will give it a competitive edge over BMW AG and Daimler AG, who are also both targeting China with their electric vehicle models. Moreover, Tesla’s Shanghai factory also puts pressure on Chinese electric vehicle companies such as NIO (NYSE: NIO) and Xpeng Motors.
A 20% reduction in the cost would lower the Model 3’s price to below 300,000 yuan. Xpeng said last month that its new P7 Sedan will be priced at 270,000 yuan to 370,000 yuan. NIO’s ES6 sport vehicle, its cheapest model, starts at 358,000 yuan.
Bill Russo, Founder of Shanghai-based consulting firm Automobility Ltd., said the lowered price will help grow the market share of electric vehicles and also force competitors to make adjustments. However, Russo also notes that Tesla’s potential pricing of its vehicles could impact the Company’s initial sales. Russo believes that customers may hold off on purchasing until the prices are lowered.
Musk forecasted that Tesla will make at least 1,000 vehicles per week in its Shanghai factory by the end of the year, which is a volume Tesla spent months trying to reach in its original California-base factory. Eventually, Musk expects to reach a weekly production rate of 3,000 at some point.
The sources mentioned that the price cuts and timing could depend on market situations.
Tesla’s Shanghai factory is now in the final stages to begin deliveries. This month, Chinese authorities disclosed that the locally built Model 3 will qualify for state subsidies of as high as 24,750 yuan per share car, however, it is unclear how much of that rebate would directly to the customer.