Tesla cuts production of Model Y in China as brutal price war hits demand: report

By Louis Goss

Tesla has cut Model Y production at its gigafactory in Shanghai in response to dwindling demand for its electric cars in the face of sharp price competition from low-priced Chinese manufacturers.

The Texan carmaker has also reportedly told its suppliers to start making components used in Tesla vehicles outside China and Taiwan due to concerns about the possibility of heightened geopolitical tensions in the wake of the U.S. elections, Nikkei reported.

Tesla, which opened its Shanghai gigafactory in December 2019, cut production from its Chinese facility by 17.7% year-on-year in March, to 49,498 cars, and by 33% in April, to 36,610, figures from the China Association of Automobile Manufacturers show.

The production cuts were made in response to a slowdown in Chinese demand for Tesla's Model Y cars, as a result of sharp price competition from Chinese electric vehicle makers and a slump in the country's economy, a source told Reuters.

Tesla's cuts saw the carmaker's overall production from its Shanghai facility drop 5% in the first fourth months of 2024, as lower output of its Model Y was partially offset by a 10% increase in production of its more expensive Model 3 sedan.

Severe price competition in the Chinese market has seen domestic car makers capture the lion's share of sales in the country, at the expense of Tesla, with Shenzhen company BYD Auto now controlling a 34.3% market share versus Tesla's 6.8%, down from 7.8% last year.

Tesla's basic Model Y car costs -Yen263,900 ($36,440) in China while Shenzhen carmaker BYD Auto has multiple electric cars on the market for under -Yen100,000. A slump in China's economy has also hit consumer spending.

Now, Tesla is also telling its suppliers to start shifting production of parts and components including circuit boards outside China, in order to shield against any possible disruption caused by a worsening of relations between the U.S. and China, Nikkei reporting, citing six sources.

"We serve several American automobile makers, and Tesla is the most aggressive in terms of trying to avoid the risks surrounding China and Taiwan," an electronics supplier executive told Nikkei.

Earlier this week, a Chinese business group signaled China is considering imposing tariffs of up to 25% on foreign-made cars, following the Biden administration's announcement on May 14 that it would be placing 100% tariffs on Chinese-made electric vehicles.

-Louis Goss

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05-24-24 0432ET

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