Tesla Cuts Price of New Model 3 in China Amid Slumping Sales

Tesla has reduced the price of its newly launched Model 3 RWD Long Range in China by 10,000 yuan, just weeks after its launch. The move comes as Tesla's sales in China decline 6.3% year-to-date, despite the country reaching a tipping point of EV adoption. Tesla has launched two new models, but the level of competition in China is high, resulting in Tesla selling vehicles at virtually 0% gross margin. This may lead to Tesla starting to lose money in 2026 unless changes are made.

Tesla Inc. has reduced the price of its newly launched Model 3 RWD Long Range in China by 10,000 yuan, just weeks after its introduction. This move comes as Tesla's sales in China have declined by 6.3% year-to-date, despite the country reaching a tipping point of electric vehicle (EV) adoption [1]. The decision to lower the price is part of Tesla's broader strategy to counter the intense competition in the Chinese market, where local rivals have been aggressively expanding their market share.

Tesla's recent sales performance in China highlights the challenges it faces. The company's Q2 2025 deliveries in China fell by 11.7% year-on-year, contrasting sharply with the 12.9% growth seen by local rival BYD in the same period [2]. This decline underscores the significant competitive pressure Tesla is under, particularly from companies like BYD and Xiaomi, which have leveraged aggressive pricing and AI-integrated ecosystems to capture market share [3].

The price cut is part of a broader strategy by Tesla to stabilize its sales in China. However, the move has come at the cost of eroding gross margins, which fell to 16.3% in Q2 2025 from 18.3% in Q2 2024 [3]. This trade-off raises critical questions about the long-term sustainability of Tesla's approach and its impact on shareholder value in a hyper-competitive EV landscape.

The intense competition in China's EV market has forced Tesla to adapt its pricing strategy. Local players have been undercutting Tesla's premium positioning by offering models at significantly lower prices. For example, BYD captured 31.4% of the 2024 market share by offering models as low as 100,000 yuan, while Xiaomi's SU7 and YU7 models, priced 10,000 RMB below Tesla's equivalents, secured 240,000 pre-orders in 18 hours [2]. Tesla's response has been to introduce the "depop" Model Y, designed to reduce production costs by 20% through simplified designs and 4680 battery cells [3]. However, this strategy risks supply chain bottlenecks and quality control issues, as seen in Tesla's recent struggles with production delays and customer complaints [3].

The financial implications of Tesla's pricing strategy are evident in its Q2 2025 results. The company's operating margin fell to 4.1%, while BYD and Xiaomi saw stronger retail demand and investor confidence [3]. If Tesla fails to recalibrate its strategy, there is a risk that it could start to lose money in 2026.

In conclusion, Tesla's price cut in China is a strategic move aimed at countering the intense competition in the market. However, the company must navigate the delicate balance between affordability and innovation to ensure long-term sustainability and shareholder value. The future of Tesla's China strategy will be critical in determining its success in the hyper-competitive EV landscape.

References:

[1] https://www.reuters.com/business/autos-transportation/tesla-cuts-price-long-range-rwd-model-3-china-2025-09-01/
[2] https://www.businesstoday.com.my/2025/09/01/tesla-lowers-model-3-rwd-price-in-china/
[3] https://www.ainvest.com/news/china-ev-market-tesla-rivals-outpacing-giant-2509/