(Bloomberg) — Tesla is considering cutting the price of its China-built Model 3 sedans by 20% or more next year, people familiar with the matter said, betting the move will lure buyers as the world’s biggest electric-vehicle market slows.
Tesla aims to lower costs by using more local components, allowing it to import fewer parts and avoid tariffs, said the people, who asked not to be identified discussing internal deliberations. Prices of the cars, which will be built in a new factory near Shanghai and start at 355,800 yuan ($50,800), will probably be lowered from the second half of 2020, they said.
Chief Executive Officer Elon Musk is counting on the multibillion-dollar Shanghai plant — Tesla’s first factory outside the U.S. — to give it an edge over the likes of BMW and Daimler, which are also targeting China with new EV models. Price cuts would also pressure local incumbents such as Nio and Xpeng Motors to follow suit.
“People shop on price — this will help grow the market share of electric vehicles,” said Bill Russo, founder of Shanghai-based consulting firm Automobility. “This will also force the competing products to make adjustments.”
Tesla shares climbed as much as 2.4% to $388.15 shortly after the open of regular trading Wednesday, surpassing intraday highs reached when Musk sent his infamous August 2018 tweets about taking the company private. The stock has surged more than 50% since the carmaker reported a surprise third-quarter profit on Oct. 23.
While the potential price cut shows Tesla is cognizant of the competition, the move could also impact the company’s initial sales as customers hold out for the lower prices, Russo said. Musk has predicted Tesla will make at least 1,000 cars a week in Shanghai by the end of the year — a volume the company’s original factory in California spent months trying to hit — and has said a weekly rate of 3,000 is a target at some point.
The scale of the price cuts and the timing could change depending on market situations, the people said. A Tesla representative in China declined to comment.