The starting price of the basic Model 3 sedan was cut 5.9% to 245,900 yuan ($34,300), according to the car manufacturer’s official website. The Model Y sport utility vehicle starting price was lowered to 258,900 yuan from 266,400 yuan, marking a 2.8% cut.

The moves may pile further pressure on Tesla’s rivals to lower prices, after it initially sparked a prolonged round of discounting in January 2023 that crunched industry wide profit margins. Local manufacturers such as Xpeng Inc. and BYD Co. and global automakers like Volkswagen AG were all forced to slash prices to defend their market positions through 2023, with only a third of local car manufacturers eventually meeting their annual sales goals. 

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Meanwhile, China’s electrified-car market is projected to slow for a second year in 2024 as the nation’s patchy economic recovery from the pandemic weighs on consumer sentiment. Shipments of battery-electric and plug-in hybrid vehicles to dealers are projected to increase 25% to 11 million units this year, the China Passenger Car Association said earlier this week. It compares to a 36% growth in 2023 and a 96% pace in 2022.

“The gap between Chinese automakers and Tesla has been unprecedentedly small,” UBS Group AG analyst Paul Gong said at an event earlier this year, noting the pace at which Chinese manufacturers have launched new models and their focus on advanced technologies. Tesla, which mainly relies on just the Model 3 and Model Y for sales, has increasingly been using price cuts to lure buyers.  

Tesla delivered 1.81 million vehicles globally in 2023, with over half shipped from its Shanghai factory. Even though it met its original goal of shipping 1.8 million cars, Tesla was overtaken as the world’s biggest seller of pure electric cars to Shenzhen-based BYD in the fourth quarter. 

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Last year was marked by steep price cuts as car manufacturers competed to stay competitive. Discounting peaked in May, when almost 900 car variants had their price reduced by more than 5% in the preceding three months. While the markdowns have abated somewhat since then, they remain elevated relative to the past two years. 

State-owned manufacturer Chery lowered the price of its EVs by 8,000 yuan ($1,110) on 29 December, saying it was firing the “first shot” of price reductions for 2024. Others quickly followed, including BYD, which handed out a package of incentives worth at least 18,000 yuan on the slow-moving Frigate 07 SUV.

Tesla finally revamped the six-year-old Model 3 in September, and is preparing a refreshed Model Y in its China factory, which may come to market as soon as mid-2024, Bloomberg News reported late last month. By comparison, Guangzhou-based Xpeng launched five new models in 2023, including upgraded versions, and Beijing-based Li Auto Inc. plans to have a lineup of 11 models by 2025.