Government Subsidies Drive Tesla To Lower Model 3 Price In China

Tesla Inc. TSLA has lowered the price of the standard Model 3 cars in China to qualify for a newly announced government subsidy for electric vehicles.

What Happened

On Wednesday, during the company’s earnings conference call, the CEO of Tesla, Elon Musk said, “We are making rapid progress on lowering the production costs in China, and we're actually excited to announce on this call that we will be reducing the price of the standard range Model 3 tomorrow." 

This is the second time in 2020 that Tesla has cut the price of its Model 3 range. Tesla lowered the price by 9% in January. Now the China manufactured Model 3 is priced at $45,734.

Why It Matters

According to the Nikkei Asian Review, Musk’s announcement of the price cut on Model 3 came last week after the Chinese Finance Ministry said it was reducing government subsidies for electric vehicles by 10% in 2020, and the subsidy would only be available for passenger cars costing less than $42,390.

Analysts at Wedbush Securities Inc. have said that despite the pandemic, strong demand for the Model 3 in China is a “ray of light.” It is expected that Tesla could make as many as 100,000 deliveries from its new Shanghai gigafactory this year.

Gene Munster, a Managing Partner at Loup Ventures, said that overall delivery numbers for Tesla’s vehicles this year are likely to range from 403,000 to 500,000.

Tesla announced its Q1 earnings of $1.24 per share on Wednesday, which beat the consensus estimates by analysts by 36 cents. This is a 142% increase compared to losses of $2.90 per share recorded last year.

Price Action

Tesla shares traded 8.81% higher at $871 in the after-hours session on Wednesday. The shares had closed the regular session 4.08% higher at $800.51.

Photo Credit: Courtesy of Tesla.