Tesla cuts prices in China for select Model Y versions

BEIJING (Reuters) -Tesla on Monday said it has cut prices in China for its Model Y long-range and performance versions starting on Aug. 14, sending its shares lower on concern of further pressure on its profit margins.

This marks the first time since January that Tesla (NASDAQ:) has reduced its vehicle prices in China, although the U.S. electric carmaker has turned to other incentives to boost sales in the face of rising competition in recent months.

The move came after sales of Tesla’s China-made vehicles fell 31% in July from June, their first month-on-month decline since December, as the automaker idled some production to prepare for a revamped Model 3 launch. In contrast, China’s BYD increased sales from June.

Tesla reduced the starting prices of both models by 14,000 yuan ($1,935). The Model Y Long Range’s starting price drops 4.5% to 299,900 yuan, and the starting price of the Model Y Performance is now 349,900 yuan, down 3.8%.

In the same announcement, Tesla also said it would offer insurance subsidies in China of 8,000 yuan between Aug. 14 and Sept. 30 for buyers of the entry-level, rear-wheel-drive versions of the Model 3 vehicles in inventory.

Evercore ISI analyst Chris McNally said in a research note that he expects similar select price cuts in the U.S. and Europe, and that could lead to about 100 basis points of sequential pressure on Tesla’s third-quarter margins.

Shares in the company fell 2.7% to a more than two-month low of $236.15 in early trading.

Tesla’s price cuts follow cash rebates last month which came despite a pledge made along with several other companies in China to avoid “abnormal pricing”, which some thought signalled a truce in the price wars that have threatened the profitability of the industry.

Last month Tesla CEO Elon Musk said further price cuts were a possibility, even after they squeezed the automaker’s margins.

“Tesla is expected to start deliveries of a refreshed Model 3 in China soon (Project Highland), and we suspect some price cuts are likely for the outgoing version as well,” Deutsche Bank (ETR:) analysts said.

Tesla has slashed prices several times in the U.S., China and other markets since late last year, and has offered other incentives to reduce inventory, trying to shield itself against competition and economic uncertainty.

($1 = 7.2367 yuan)