On May 1, Tesla's China-made Model 3 standard range upgrade reduced the price, before subsidizing the starting price from 323,800 yuan to 291,800 yuan, minus the new energy passenger car subsidy consumers face the price from 303,550 yuan to 271,550 yuan.
As for the reason for the price reduction, Grace Tao, Tesla's vice president of external affairs, said Tesla hopes that the standard range upgrade of the China-made Model 3 will comply with China's new energy vehicle subsidy policy.
The price reduction was originally intended to allow consumers to enjoy subsidies for new energy passenger cars, not to capture a larger market share, she said.
The Tesla Shanghai Gigafactory, located in Shanghai's new free trade zone, Lingang, is currently the only factory in the world that is producing complete Tesla vehicles.
Tao said the Shanghai plant is producing at a normal rate with a capacity of 3,000 units per week. The second phase of Tesla's Shanghai plant, which is mainly used for the production of the Model Y, is under construction and the China-made Model Y is expected to be launched next year.
270,000 yuan after the subsidy
Tesla didn't end up giving up on the sub-$300,000 market.
On April 23, China issued the 2020 new energy vehicle subsidy policy, extending the implementation period of the new energy vehicle promotion and application of financial subsidy policy to the end of 2022.
The most obvious change in the 2020 New Deal for new energy vehicle subsidies is the establishment of a 300,000 yuan "price line", that is, new energy passenger car subsidies before the selling price must be 300,000 yuan and below, and new energy passenger cars priced above 300,000 yuan cannot be subsidized.
Since the previous China-made Model 3 standard range upgrade is subsidized before the price of 323,800 yuan, above the threshold of 300,000 yuan. Without a price adjustment, the model will lose its subsidized benefits after the transition period ends on July 22.
In response to the price cut, Tao said Tesla's original intention was for consumers to enjoy the state's policy of supporting new energy vehicles, helping them to buy more cost-effective products at a "more reasonable price" and "thus enjoying smart products more quickly, not lowering prices based on greater market share."
This price reduction is only for the China-made Model 3 standard range upgrade, because the original price of the model is close to 300,000 yuan, China-made Model 3 long range version of the official price of 344,050 yuan, performance version 419,800 yuan.
Tao believes that adjusting the price of the China-made Model 3 standard range upgrade to a price limit in line with national policy is a "viable option".
"Tesla's pricing strategy is simple, determine a reasonable margin, and on that basis any savings, such as tariff adjustments, subsidies, cost optimization, etc., will be fed back to consumers."
Tao explained that the current Tesla car price changes in the market reaction is clear, because it is a direct system, terminal prices are transparent, no employee discounts, "everyone is the same price, correspondingly, we have any price adjustment, everyone will know in the first moment."
After the new policy was issued, there are voices that China-made Tesla will reduce the price to up to 300,000 yuan to meet the conditions in the New Deal for New Energy Vehicle Subsidies in 2020. CITIC Securities released a research report that the new energy vehicle subsidy policy is in line with expectations, is expected to pull the China-made Tesla price reduction volume.
However, the China-made Model 3 standard range upgrade finally arrived at a price that went up before it went down. The day after the new policy was released, Tesla's official website showed that the final purchase price of the China-made Model 3 standard range upgrade rose from 299,050 yuan to 303,550 yuan, up 4,500 yuan.
The final purchase price of the China-made Model 3 Long Range Edition has risen by 5,000 yuan from 339,050 yuan to 344,050 yuan.
But Tesla, for its part, believes that the increase in the final price to consumers is due to the reduction in the amount of subsidies under the latest subsidy policy.
Tao said the base price of the China-made Model 3 standard range upgrade has been 323,800 yuan, the final price is the base price and the price after the subsidized new energy passenger car.
From the issuance of the subsidy policy until the current price reduction, the subsidy for the standard range upgrade during the transition period is 80% of the past, the official website appears that the price increase is "entirely due to the price changes brought about by the change in the subsidy policy".
It is worth noting that in the Tesla parts China-made road, Contemporary Amperex Technology (CATL), China's largest automotive lithium-ion battery maker, issued an announcement that it will supply lithium-ion power batteries to Tesla starting in July, the supply agreement will last until June 30, 2022.
If achieved, lithium iron phosphate (LFP) batteries will be included in the Tesla production line for the first time, which is expected to reduce production costs for related models.
China-made Model Y to be launched next year
In the early hours of April 30, Beijing time, Tesla released its first-quarter earnings report. Tesla's total revenue for the first quarter was $5.985 billion, higher than market expectations of $5.9 billion and up 32% year-over-year.
Under U.S. GAAP, net profit attributable to shareholders of publicly traded companies was $16 million, better than the $200 million loss expected by the market, compared to the company's $700 million loss in the same period last year.
After the release of Tesla's earnings data, the after-hours share price soared 8.72% to $870.32, and finally closed at $800.51, up 4.08%.
A group of car companies were hit by the epidemic, Tesla "surged" and delivered 88,496 electric cars in the first quarter. Of these, Model 3 and Model Y delivered a total of 76,266 units and Model S and Model X delivered a total of 12,230 units.
In terms of capacity, Tesla said that its Shanghai super plant is operating better than expected, with Model capacity expected to increase to 4,000 units per week and 200,000 units per year in mid-3 years.
Tesla's Fremont, California, U.S. plant has been suspended since March 24, but Tesla's goal of delivering 500,000 vehicles by the end of 2020 has not changed.
And Tesla's Shanghai Gigafactory, located in a new part of Shanghai's free trade zone, Lingang, resumed operations on Feb. 10, "after undergoing adjustments in parts, suppliers since the resumption, it is now basically back to stability."
Tao said the Tesla Shanghai Gigafactory is currently the only one in the world that is producing Tesla's complete vehicles.
"The various runs on this side are critical, we're all producing at a normal rate and have been able to reach a capacity of 3,000 units per week." Meanwhile, the second phase of Tesla's Shanghai factory, which is mainly used for the production of a new generation of intelligent electric SUV, the Model Y, is under construction, and the China-made Model Y is expected to be launched next year.
During the first-quarter earnings conference, Tesla CFO Zach Kirkhorn said that the cost of producing the Model 3 at the Shanghai plant in the first quarter was already lower than at the Fremont, California plant, and there is still plenty of room to reduce production costs.
"We'll reduce costs by increasing production, and you'll see changes in the second quarter to the end of the year. At the moment we're not fully localizing our supply chain and there's room to reduce production costs before we fully implement local suppliers."
In January this year, Tesla's Shanghai factory parts localization rate of about 30 percent, is planned to increase to 70-80 percent by July next year, Tao said, next, the Shanghai factory will accelerate the parts China-made rate according to the plan, "affected by the epidemic, China-made rate with the previous plan has some changes, but by the end of this year will still achieve most of the China-made."
As for the partnership with CATL, she said that it's progressing normally and that Tesla is providing a complete vehicle experience and will certainly make sure that every component is performing as it needs to, i.e. ensuring that the warranty, performance, and range are in line with Tesla's standards.
"So in terms of batteries, Tesla may still have other options or other suppliers, but whatever is loaded on the car will meet the standards that Tesla supplies." Tao said.
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