Tesla is considering reducing the price of its China-made Model 3 sedan by 20% or more next year, Bloomberg reported Wednesday quoting people familiar with the matter.
The move is expected to attract buyers as China, the world's largest electric vehicle market, slows.
Tesla would reduce costs by using more local parts, which would allow it to import fewer parts and avoid tariffs, people familiar with the matter said.
The report also said that these cars will be produced at Tesla's new Shanghai plant, starting at 355,800 yuan, and will be reduced from the second half of 2020.
As electric car manufacturers struggle in an unprecedented downturn, competition is heating up. Sales of electric cars in China have fallen for months after the Chinese government reduced subsidies.
The report said that the scale and timing of the price cuts may change according to market conditions.
Tesla's representative in China declined to comment. However, soon after the report was published, Tesla China responded to the Beijing News that "they have not heard of this matter, please pay attention to the official website information."
Much of the cost reduction will depend on the battery, which is usually the most expensive part of an electric car. People familiar with the matter said in August that Tesla currently relies entirely on Japanese Panasonic batteries, but that is changing as it agrees to buy batteries from LG Chem Ltd., a plant about 320 kilometers northwest of Shanghai.
The Bloomberg report said last month that Tesla had also reached an agreement to use batteries from China's Contemporary Amperex Technology Co., Ltd. by early next year.
On December 6, the Tesla Model 3 produced in China was included in a recommended list by the Ministry of Industry and Information Technology to have government subsidy.
The list shows that the Tesla Model 3 produced in China will be equipped with two battery versions. Their operating range is 445km and 455km, and the energy consumption is 12.4KWh/100km and 12.5kWh/100km.
Based on current new energy vehicle subsidy rules, the battery energy density of Model 3 is in the range of 140-160Wh/kg, so its battery system energy density adjustment factor is 0.9.
As Tesla reports a higher level of energy consumption value, which is higher than the threshold value by more than 35%, so the vehicle energy consumption adjustment factor is 1.1.
Based on this information, the Tesla Model 3 produced in China will receive a subsidy of about 2.5 × 0.9 × 1.1 = 24750 yuan ($3,500).
At present, the starting price of the domestic version of the model announced by Tesla is 355,800 yuan. If the subsidy is subtracted, the real price will be 331,500 yuan.
Earlier reports said Tesla plans to raise imported Model 3 prices in China starting in January.
On February 22 this year, the imported Tesla Model 3 was officially launched in the Chinese market. Compared with Model S and Model X, Model 3 is more compact, simpler in design, and more cost-effective.