Tesla rejects price cuts in China and the closure of German factories

(Bloomberg) — Tesla Inc. shares fell. After the carmaker cut prices again in China and said its only European factory would be disrupted due to attacks in the Red Sea.

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The company reduced starting prices for the Model 3 sedan by 5.9% to 245,900 yuan ($34,300) and cut prices for the Model Y SUV by 2.8% to 258,900 yuan, according to its website.

Hours earlier, Tesla told Reuters it would suspend most production at its Model Y factory near Berlin from January 29 to February 11, as suppliers change transportation routes in response to attacks on ships in the Red Sea.

Tesla shares fell as much as 4.2% as of Friday afternoon New York time, putting the shares on course for their 11th decline in 12 sessions. The stock fell Thursday after Hertz Global Holdings Inc. announced… announced plans to sell a third of its fleet of electric cars in the United States.

Read more: Tesla boosts wages for US factory workers as UAW momentum grows

Tesla has repeatedly cut prices in China since late 2022, prompting other manufacturers to respond and squeeze profit margins industry-wide. Domestic manufacturers, including Xpeng Inc. BYD Co., and leading international players such as Volkswagen AG, are discounting their vehicles to defend market share. Even then, less than a third of domestic automakers met their annual sales targets.

Growth in China's electric vehicle market is expected to slow for a second year in 2024, as the country's unstable recovery from the pandemic weighs on consumer sentiment. Shipments of electric and hybrid vehicles to dealers are expected to increase 25% to 11 million units this year, the China Passenger Car Association said this week. This compares to growth of 36% in 2023 and 96% in 2022.

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Tesla sold 1.81 million vehicles globally in 2023, more than half of which were shipped from its Shanghai factory. While the Elon Musk-led company met its annual delivery target, BYD became the world's largest seller of battery electric vehicles in the fourth quarter.

“The gap between Chinese automakers and Tesla has been unprecedentedly small,” UBS Group AG analyst Paul Jung said at an event earlier this year, noting the pace at which Chinese companies launched new models and focused on advanced technology.

Read more: Five things to watch in the Chinese car market this year

Bloomberg News reported late last month that Tesla revamped the six-year-old Model 3 in September, and is preparing an updated Model Y that could hit the market in mid-2024. Chinese automakers have been more active in rolling out new models, with… Guangzhou-based Xpeng five in 2023, and Li Auto Inc. plans to… For a range of 11 models by 2025.

Tesla's German factory opened in March 2022 and has the capacity to produce 375,000 cars annually. The company warned in October that it would gradually increase production at its plants near Berlin and in Austin to keep costs contained.

–With assistance from Danny Lee.

(Updates share in fourth paragraph.)

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