Tesla, the renowned electric vehicle (EV) manufacturer, has introduced a new rebate program in China to boost sales amidst intense competition in the market. The move comes as the company notifies some workers at its Shanghai facility of layoffs, according to an announcement by Tesla and a worker who received a notice.
Just a day after joining 15 other companies, including Chinese EV makers Nio, Li Auto, and Xpeng, in a commitment to avoid abnormal pricing, Tesla announced a cash rebate offer on new cars. This pledge is seen by some as a signal of a possible truce in the ongoing price war that has taken a toll on industry-wide profitability.
These developments shed light on the challenges faced by Tesla and its competitors in China, which happens to be the world’s largest EV market. The pricing commitment was organized by the China Association of Automobile Manufacturers.
Fortunately, output at Tesla’s Shanghai Gigafactory, its largest and most productive hub, will not be affected by the layoffs. Industry insiders, familiar with the operations at the factory complex that employs around 20,000 workers, confirmed this.
While earlier price cuts by Tesla led to a boost in sales this year, the intensified competition has put pressure on automakers and suppliers to control costs, according to analysts and executives.
Tesla has now announced a cash rebate of 3,500 yuan ($483) for new buyers of its Model Y and Model 3 vehicles if they provide a referral from an existing owner. Alongside this, workers involved in assembling battery packs at Tesla’s Shanghai complex reportedly received layoff notices. However, the exact number of workers affected or the reason behind the layoffs remains unclear.
Tesla’s record-breaking sales of 247,217 China-made vehicles in the second quarter indicate the company’s strong presence in the market. However, comments by Volkswagen’s China CEO, Ralf Brandstatter, about the unhealthy competitive environment characterized by high price discounts highlight the challenges automakers face.
Consultancy Alix Partners predicts that while China’s EV market will continue to grow rapidly, the increasing competition and excess capacity will eventually lead to a shakeout. The consultancy estimates that only 25 to 30 out of the 167 registered EV or plug-in hybrid companies in China will survive by 2030.
One interesting forecast is that Chinese brands will account for more than 50% of cars sold in the country from 2023 onwards, suggesting a shift in the market dynamics. For the past four decades, China’s auto market has been dominated by global brands such as Volkswagen, which operate through joint ventures with Chinese partners. Tesla is the only foreign automaker operating a plant without a local partner.
In an effort to further stimulate sales, Tesla has reduced the base prices of the Model 3 sedan and Model Y by 14% and 10%, respectively, since the beginning of 2023. The company also announced that new buyers will have free access to its Enhanced Autopilot driver-assistance system for 90 days.
Tesla’s sales from its Shanghai factory accounted for over half of its global deliveries in the second quarter, demonstrating the factory’s significant contribution to the company’s success.
Investors have responded positively to Tesla’s global price cuts and government incentives, leading to a rise in the company’s shares by nearly 70% since May. The market expects Tesla to stabilize its profit margin over time.
In addition to the cash rebate offer, Tesla is continuing its previously announced rebate of 7,000 yuan for buyers of its higher-end Model S and Model X vehicles. Tesla owners have already begun sharing their referral codes online to invite others to use them and potentially benefit from the cash rebate.
As the EV market in China continues to evolve rapidly, industry players must navigate an increasingly competitive landscape while maintaining profitability. The outcomes will shape the future of the global electric vehicle industry.
