Tesla Cut Prices in China. Model Y & Model 3 Prices Drop

hi it’s Lee and welcome to the test

Economist as some of you could tell Elon

and Tech were behaving a little Coy when

asked about demand issues in China for

Tesla almost a sidestepping the issue

we’re just hearing that retail sales in

China grew two and a half percent in

September this was below the expected


3.3 growth and much below the 5.4 growth

there was in August and analysts are

warning about growing inventory glut

where Auto Sales slowed in September and

EV sales Rose at their slowest rate in

five months I mean slowest in five

months isn’t that big a deal really

every five months one of those months is

the slowest rate for five months as for

Tesla September was one of their highest

months ever for domestic sales in China

the highest before that only being less

than half a percent higher so pretty

much equal highest ever a month of sales

this is during the lowest month for the

overall EV sales males in China for the

last five months therefore if you

balance that out then it’s even worse

for the other EV competitors if Tesla is

having their highest month during the

same month everyone else is at a low

but I think it’s quite obvious that

perhaps Tesla is not able to sell all

the vehicles they make in China as

easily as before we have a very easy

metric to measure this the waiting time

for delivery for a new Tesla and the

Chinese Tesla order page it’s dropped to

one to four weeks now the rhetoric from

the Bears think this is due to demand


some well actually not even bears but

conservative Bulls as well or ones that

like to sound authoritative you know

analysts and fan managers well they’ve

been saying demand is dropping some even

made up figures of how fewer sales they

were and that Tesla had to export three

times more vehicles in September than

they actually did and that was a fund

manager with the largest holding being

Tesla I guess they just like the

attention all right though there are

issues in China and Elon was asked about

future backlog on the earnings call in

particular China Elon replied saying

that China is experiencing a sort of

recession due to the property Market in

my opinion this is an effect of the

modern monetary theory that China has

been using it may have helped their GDP

but eventually too much money ends up in

the wrong place and causes bubbles that

eventually pop and you come down to

reality and realize that money cannot

simply be created out of thin air or

thin paper as the case may be I was

obviously China has a lot of serious

issues given the fact they have a

massive generation gap after Baby

Boomers too there’s going to be some

serious demographic issues that China

will face soon enough Tesla’s growth

over the last couple of years or so can

solely be attributed to their China

expansion with their factories there but

Tesla has been using these factories to

serve the domestic Market they’re now

stepping up their exports the export

Market is likely still large enough to

serve all the vehicles made in China

without selling even any in China if

there are at least Logistics to support

it of course even in a recession it

doesn’t mean that everyone in China will

stop buying Teslas either and like I’ve

mentioned many times before Tesla can

reduce the prices of their vehicles in

China and still see great profits and as

Elon says in a recession it’s a chance

to remove businesses that shouldn’t be

around in the first place we see better

asset allocation in other words it would

be more likely that other order

companies might actually go under now

I’m not necessarily even talking about

local Chinese EVS however I’m actually

referring to the local ice industry the

likes of Mercedes or GMS that are made

in China these could suffer much more

and they end up having to close down

factories in turn reducing Supply and

likely moving their demand over to Tesla

although of course the demand is

naturally moving to EVS anyway remember

if anything gets tough for Tesla it’s

always much worse for everyone else

Tesla has the highest chance of survival

of being the last man standing and

before you say Teslas are too expensive

then remember the Chinese are only

selling EVS by making losses and of

course most Legacy Autos are also

selling their ice cars at around Break

Even too and making their profit on

Services parts and financing as we also

know Tesla have ramped up their

production to a massive level around 20

500 a week or around 90 000 a month and

the capacity is actually closer to a

hundred thousand if they take on more

shifts this is a large increase in

production which means there are more

vehicles to sell with demand not as good

in China as it was previously and this

increased Supply then Tesla are possibly

making more Vehicles than they can

actually sell as they’re also restricted

to the number of vehicles they can

export on ships to markets that still

aren’t close to filling their waiting

lists we talk about the value of Tesla’s

pricing power a lot and now we’re

witnessing it in full effect Tesla have

just dropped the prices of both the

model Y and model 3. the model y dropped

from 317 000 Yuan to 289 000 but will

now also qualify for the subsidy taking

a further 11 000 Yuan off their price

down all the way to 278 000 Yuan which

by the way is thirty eight thousand

dollars and that’s whilst the US dollar

is strong it would have been even less

before the stronger dollar that is not

what I classify as a high-end luxury SUV

at least not the sticker price of course

don’t forget all the other cost Savings

in fuel too and the model 3 is now 35

000 equivalent to

if I was an investor in EV companies and

saw this Tesla price drop I’d be much

more concerned about investments in

other Chinese EV companies than Tesla if

these prices are dropping all that

rhetoric of the Chinese EVS coming on

the market taking Tesla’s market share

well Tesla lowering their prices is

definitely going to take some of their

market share there was also a lot of

pentap demand around Teslas in China due

to a rumor that these prices might drop

and people waiting to see as for the

competition they can’t really retaliate

they’ve been having to raise prices due

to additional costs and still can’t make

a profit this must make things extra

scary for them that Tesla can now come

in at these lower price points not that

they were any real competition the

Chinese just make cheap EVS at cheap

prices Tesla make cars that you care

about and that care about you with your

safety first officially Tesla told

Reuters it was adjusting prices in line

with costs capacity utilization at its

Shanghai gigafactory has improved while

the supply chain remains stable despite

the impact on the economy of China’s

stringent zero covert restrictions

leading to lower costs it said so

Tesla’s costs have come down which makes

sense after these line upgrades with

about 30 percent more output from the

same floor size it’s just outstanding

and obviously lower costs

they are also using lower cost Motors

and continually refining the product and

Manufacturing resulting in lower costs

also if you noticed in the financials

there was nothing mentioned about the

lineup grades and downtime in costs it

was not under restructuring costs so it

obviously was absorbed in the cost of

goods sold implying margins were better

than we thought last quarter

particularly from China

Tesla actually used to sell their model

y for a lower cost than this when their

production rate was much lower so I

would guess that these lines are still

producing a 30 margin even after these

price drops and due to all this pent-up

demand and new pricing in true Tesla

fashion there were so many orders coming

in that the website crashed so it’ll be

interesting to see what the waiting list

becomes after this these really are

low-cost cars now this is absolutely

amazing it’s going to be really

interesting to see this quarter sales

now Elon said several times how good Q4

will be epic and great with two words he

used to describe it I wonder if they’ll

Step Up production more by adding

another shift too that would mean close

to 300 000 units produced just from

Shanghai for the quarter if they haven’t

then there’s still meant to be about 270

000 still massive numbers that we really

didn’t expect to reach around this time

last year this is all a bonus okay sure

it doesn’t quite make up for the 4680

progress we were promised but that is

coming and Shanghai is more of an

indication of what these factories are

actually capable of you know maybe when

we first told the model y Factory

capacity was 200 000 a year initially

now it’s nearly hitting there in just a

quarter to put it into perspective

I’ve been researching Tesla’s demand a

lot lately and been pointing out that

even if they drop prices then it

wouldn’t affect profits that much and

that it may very well be a possibility

that this happens the amount the prices

have dropped would affect quarterly

earnings by as much as 250 million

dollars but we’re close to six billion

total in earnings now which is much more

exciting and it might even be lower than

that if Tesla end up increasing their

exports more now too as they’re working

better with Logistics anyway for some

reason this makes me happy to see these

prices rise I’m not quite sure why

perhaps because it’s good to see Tessa’s

pricing power in action and having those

massive margins they can use it puts the

competition in perspective too oh

remember Tesla still probably have 30

margin buffer and Autos are a cyclical

industry they generally struggle to make

profits during recessions this is

Tesla’s equivalent it might explain why

Tesla were being so coy about it demand

in China on the call as they didn’t want

to mention the fact that they were about

to drop prices the market may not like

this news though but I’m more excited

about this Q4 now the demand issue in

China has been answered thanks for

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