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Why Is Tesla Decreasing its Prices in China?

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Elon Musk shared the news earlier this week: Tesla cars will be decreasing its prices by 20% for its Sedan 3 built in China next year. 

At the moment, Tesla’s Model 3 is sold at roughly $50,800 in China compared with $39,990 in the US. Since the Chinese government is cutting on subsidies for electric vehicles, Tesla is adapting to the country’s market, after results of the last quarter show that sales have hit the lowest numbers since 1989.

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After a year of tension between China and the United States, tariffs have hit hard the economy between the two countries and Elon Musk is hoping to increase sales in Asia by the middle of next year. 

A new strategy for China

China’s cars sales are plummeting. According to Business Insider, “In the first half of this year, passenger-vehicle sales in China declined almost 10% compared with the same period last year. And in 2018, the country experienced its first annual auto-sales decrease since 1990″.

As it turns out, the Chinese government has stopped subsiding electric cars, making it more difficult for local consumers to purchase Tesla’s Model 3.

However, China is considered to have the biggest potential market for electric cars and renewable energies-oriented vehicles.

Tesla Shanghai’s plant might help

According to Bloomberg“Elon Musk is counting on the multibillion-dollar Shanghai plant — Tesla’s first factory outside the U.S. — to give it an edge over the likes of BMW AG and Daimler AG, which are also targeting China with new EV models.”

Investors seemed satisfied about the news, since Tesla shares went up 2.4% at $388.15 last Wednesday. This reassured shareholders as the company lost credibility after Elon Musk posted tweets on August 18th, wrongfully saying he would take the company private. 

Earlier this year, Tesla’s shares rose up by 50% after surprisingly good profit for the third quarter of 2019. 

Read on Alvexo: “Tesla’s Q3 Earnings Show Large Profit”

Chinese market is tough for Tesla

Last but not least, Tesla’s decision only highlights the difficulties foreign car manufacturers will have to face in 2020 in China.

The country has already well-established brands, such as Xpeng that is selling a P7 Sedan for $38,600, which would still be cheaper than Tesla’s future lowered price set at $39,000 for the Sedan 3.

On the other hand, NIO’s ES6 SUV costs $51,240, whereas Tesla’s SUV starting price starts at $81,000.

In the meantime, the Chinese government  announced it would reduce financial help to $3,500 per person and per car. This might be another challenge facing Tesla despite the 20% price cut.

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Note: The opinions expressed in this article are the author's own and do not necessarily reflect the view of Alvexo on the matter.