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BusinessTesla Global VP Grace Tao Explains China Price Adjustment Strategy

Tesla Global VP Grace Tao Explains China Price Adjustment Strategy

Tesla China recently reduced the prices of its Model 3 and Model Y, inciting the frustration of previous buyers and driving an uptick in new customers. On January 9, Grace Tao, global vice president of Tesla, attempted to clarify the company’s pricing logic. The following content is based on an article by Chinese media outlet AutoReport published on January 10.

The latest price drop is the fourth made by Tesla China since September last year, but it cannot be ignored that some Tesla models have also experienced six consecutive price increases in the past year.

Tao said, “The adjustment of the price of a product is actually a prediction of the cost change of the enterprise in the next period of time. The biggest difference between 2023 and last year is that the pandemic has basically passed. We believe that the supply chain has returned to normal to a great extent, and there will be no unpredictable shortage of materials as in previous years, which will bring uncertainty in cost. Compared with last month, consumers think that our prices have dropped a lot. In fact, the price last month rose.”

As for the price adjustment since then, she believed that the localization rate of Tesla’s supply chain in China has reached 95%, and theoretically there is not much room for improvement, so after this adjustment, prices would be relatively stable.

On the weekend after Tesla announced the price drop, some stores and delivery centers across the country were the recipients of car owners’ complaints and demands for compensation.

Tao said that the firm has used some relatively new ideas, such as a direct sales mode and price adjustments. Under the direct sales mode, prices are completely open and transparent, with no discount or price increase. As everyone gradually understands why Tesla wants to do this, Tao believes that they may eventually get used to it.

Some insiders speculated that Tesla’s price reduction is because the growth rate of orders has failed to keep up with its increasing production capacity. After the price reduction, the estimated delivery time of its Model Y has changed from “1-4 weeks” to “2-5 weeks,” which reflects this view.

“You may see that there are some differences between our output and sales volume, mainly because of our large scale, for example, some cars are on the way to transportation. I think this is very normal. The delivery cycle is related to effective working hours. For example, there is a holiday during the Spring Festival, so the whole January only has about two weeks to work. It is unlikely to reach full production,” said Tao.

On January 1 this year, China abolished a subsidy policy for new energy vehicles that had lasted for more than 10 years, and brands including BYD, Chery, Changan Automobile and Leapmotor have increased their prices to varying degrees. On January 9, Li Xiang, the founder, chairman and CEO of Li Auto, said on social media that the largest consumer group of its L7 model, which will be launched on February 8, is previous Tesla buyers.

Tao said that Tesla has never regarded other electric vehicle companies as competitors, and believes that all manufacturers should work together to perfect products and meet the needs of customers in different market segments.

Finally, Tao denied various rumors about a possible smartphone business, the Tesla Model 2, a second factory in China, and Tom Zhu’s promotion.

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