Tesla Inc is considering cutting the price of its China-built Model 3 sedans by 20 per cent or more next year, people familiar with the plans said, betting the move will lure buyers as the world’s biggest electric-vehicle market slows.

Tesla aims to bring down costs by using more local components, allowing it to import fewer parts and avoid tariffs, the people said, asking not to be identified as the matter isn’t public. The price of the cars, built at Tesla’s new Shanghai factory, starts from 355,800 yuan ($50,800). This 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 US, to give it an edge over the likes of BMW AG and Daimler AG, which are also targeting China with new EV models. The move would also pressure local incumbents such as NIO Inc and Xpeng Motors to follow suit with price cuts.

“People shop on price this will help grow the market share of electric vehicles,” said Bill Russo, founder of Shanghai-based consulting firm Automobility Ltd. This will also force the competing products to make adjustments.

A 20 per cent cut would bring the Model 3’s starting price below 300,000 yuan. Xpeng said last month that its new P7 sedan will be priced at 270,000-370,000 yuan. NIO’s ES6 sport utility vehicle, its cheapest model, starts at 358,000 yuan.

Tough market

Competition is heating up as EV makers struggle through an unprecedented slump. Sales of electric cars have fallen for months in China after the government scaled back subsidies.

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.

Shares of Tesla’s suppliers rose on expectations of increasing sales. Ningbo Tuopu Group Co, which makes suspension and vibration-control mechanisms, jumped as much as 4.4 per cent, while parts manufacturer Ningbo Xusheng Auto Technology Co advanced as much as 9.2 per cent.

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.

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