Tesla announced a couple of days back that they will be reducing the cost of some of the variants of the Model 3 that are being produced in the Shanghai Gigafactory in China. This news stated that the new prices will be applicable from the beginning of the new quarter, i.e, October 1st, in a bid to try and bridge the gap between Tesla vehicles and locally-manufactured electric cars. The result of this announcement was a big spike in the number of orders for the Model 3 in China today.
Tesla Stores In China Flooded With Orders After Model 3 Price Cut
The China Sales Conundrum
China is a huge market for the automobile industry, especially when it comes to the electric mobility sector. According to 2019 numbers, the country recorded close to 50% out of the worldwide sales of electric vehicles, which makes it one of the hottest regions for all-electric vehicle manufacturers to target. Unfortunately for Tesla, they hadn’t been able to crack the case of selling their cars in the country, owing to a number of local manufacturing companies. These local companies undermined Tesla’s sales early on, as the pricing of the Model S and Model X was on the higher side. In comparison, the local brands offered a much lower cost on their cars. The introduction of the Model 3, however, changed the scene a bit, as it gave customers a Tesla vehicle at a much lower cost, even if it did not completely ramp up their sales. Out of the 1.1 million electric vehicles sold in China in 2019, Tesla sold 40,000, which comes out to less than 4%. That’s definitely a low figure considering China’s contribution to the EV market. With the new pricing increasing the sales now, Tesla will be looking to increase that number.
How much is the reduction in costs?
The earlier cost of the Model 3 Standard Range Plus was 271,550 Yuan (40,000 USD), but after the price cuts, it will cost 249,900 Yuan (36,800 USD). That’s a $3,200 reduction in price, which is the major reason for the boost in sales. This also means that the Model 3 Standard Range Plus manufactured in China is less expensive than one manufactured at the Fremont plant in California, which costs roughly $37,990. The new customers in China will now get not only cheaper vehicles, but better-performing cars as well, as Tesla also announced an increase in range from 276 miles (444 km) to 290 miles (466 km).
Along with this, the price of the Long Range variant has also been brought down from 344,050 Yuan ($50,660) to 309,900 Yuan ($45,600). These are significant price cuts brought in by Tesla and are sure to affect the sales positively.
What facilitated the price cut?
There were reports that Tesla is set to roll the Model 3 cars in China equipped with new cell chemistry inside the battery pack. The Standard Range Plus variant of the Model 3 will now run on lithium iron phosphate (LFP) batteries, which will be completely cobalt-free. There has been a lot of discussion regarding the usage of cobalt in the production of electric vehicle batteries. Other than being very expensive, the conditions under which it is mined are considered to be in violation of human rights. With these issues affecting cobalt usage, Tesla is looking to move away from this cell chemistry.
The new chemistry (LFP) that Tesla will be using is supposed to have lower energy density than the earlier cells. However, the relative abundance of materials and lower cost of the components will help Tesla in making their cars slightly more affordable. With a reduction in the cost of the Standard Range Plus and Long Range variants by $3,200 and $5,000, the local manufacturers will now find it harder to compete, considering that Tesla already has a well-established charging network and is already a worldwide brand in this sector.
For the customers who have already purchased the Model 3 recently under the old pricing, the 7-day money-back guarantee is already in place. For the customers who wish to keep their cars, Tesla is offering a goodwill gesture in the form of free Supercharging for three whole years!! That’s quite a bit of effort that the Californian automaker is taking to increase their sales in China.
Tesla has always known to be taking impressive steps in order to sell their cars. The new cell chemistry may be less energy-dense, but by using it, they have managed to reduce their costs by quite a bit. Most people do not get affected by a slightly less energy-dense cell chemistry, but a price cut always attracts new customers. With China being the biggest EV market, it is quite clear to Tesla that they need to stamp their authority in this region, and with their innovative technologies, sales tactics, and goodwill gestures, they are definitely looking in good shape to do the same.