Tesla Offers New China Rebate as Price Cuts Rock EV Market

Residents walk past a Tesla showroom in Beijing, Wednesday, May 31, 2023. (AP)

Tesla on Friday offered a new incentive to boost electric vehicle sales in China as it notified some workers making battery packs at its Shanghai complex of layoffs, according to a company announcement and a worker who had received the notice.
Tesla announced the cash rebate offer on new cars a day after joining 15 other companies, including Chinese EV makers Nio, Li Auto and Xpeng, in a pledge to avoid "abnormal pricing", interpreted by some to signal a truce in a price war that has threatened industry-wide profitability, Reuters said.
Taken together the developments point to the pressure Tesla and rivals face in China's EV market - the world's largest.
The pricing pledge signed by executives was organized by the China Association of Automobile Manufacturers.
Output at Tesla's Shanghai Gigafactory, the company's largest and most productive hub, would not be affected by the layoffs, according to people with knowledge of the operations at the factory complex that employs about 20,000 workers.
While a round of price cuts led by Tesla boosted sales earlier this year, the competition has put pressure across the board on automakers and suppliers to contain costs, analysts and executives say.
Tesla said on Friday it would offer new buyers of its Model Y and Model 3 vehicles a cash rebate of 3,500 yuan ($483) if they could cite a referral from an existing owner.
Separately, workers in Tesla's Shanghai complex assembling battery packs were informed of layoffs, according to a worker who had received the notice.
The layoffs were first reported by Chinese online news portal Deep Analysis on Thursday, which said fewer than 1,000 workers were employed on the factory's two battery pack production lines.
Bloomberg reported on the layoffs on Friday, citing people familiar with the matter.
It was not clear how many workers could be let go or reassigned, or the specific reason behind the layoffs.
Tesla did not immediately respond to a request for comment.
'UNHEALTHY' COMPETITION
Tesla sold a record 247,217 China-made vehicles in the second quarter, data released earlier this week showed. That was the highest since it started delivering vehicles from its Shanghai factory in early 2020.
Volkswagen's China CEO Ralf Brandstatter said in a speech last month at an event attended by Chinese Premier Li Qiang that China's EV market was marked by "high price discounts" and "an unhealthy competitive environment."
Hyundai Motor, the world's No. 3 global automaker by sales, said last month it would close a plant in China and look to sell it with a factory it shut last year.
Consultancy Alix Partners said this week that while China's EV market would continue to grow rapidly, intensifying competition and excess capacity would also drive a shakeout.
Only 25 to 30 out of the 167 companies registered to produce EVs or plug-in hybrids in China will survive by 2030, the consultancy forecast.
The firm also said 2023 would be the first year that Chinese brands would account for over 50% of cars sold in their home market, a first.
For the past four decades, China's auto market has been dominated by established global brands, such as VW, operating in joint ventures with Chinese partners.
Tesla is the only foreign automaker operating a plant without a local partner.
Since the start of 2023, Tesla has cut the base price of the Model 3 sedan in China by 14% and by 10% for the Model Y, its global best seller.
On Friday, Tesla also said new buyers would also have free access to its Enhanced Autopilot driver-assistance system for 90 days.
Tesla announced the new incentives on its Weibo account. It is continuing an offer it announced in June of 7,000-yuan rebates to buyers of its more expensive Model S and Model X vehicles.
A number of Tesla owners posted their referral codes online and invited others to use them on Friday, suggesting the new cash rebate could be widely available for new buyers.
Tesla's sales of cars produced in Shanghai in the second quarter accounted for over half of its global deliveries.
The company's shares have climbed almost 70% since early May, as investors reacted to indications its global price cuts and US government incentives were boosting sales and bet the EV maker would be able to stabilize its profit margin over time.
Earlier this week, Tesla cut prices on the Model 3 and Model Y by between 3% and 4% in Japan.