Tesla Pledges To Maintain 'Core Socialist Values' In China With Local EV Rivals As Beijing Frowns Upon 'Reckless' Price Cuts

Tesla, Inc. TSLA achieved record-breaking second-quarter deliveries in China on the back of price cuts and promotional efforts implemented earlier this year. But the Elon Musk-led EV maker’s cutthroat methods have seemed to irk Xi Jinping‘s government in one way. 

What Happened: In response to this price war initiated by major electric vehicle manufacturers, including Tesla and Warren Buffett-backed BYD Company Limited BYDDY BYDDF, a letter was signed by these companies and 14 others at a motor industry conference in Shanghai, Financial Times reported on Thursday.

The letter represents a commitment to fair competition and to enhance "core socialist values" in the Chinese auto market, aiming to bring an end to the price war that has affected the EV industry.

Miao Changxing, a senior inspector at China’s Ministry of Industry and Information Technology, was quoted by FT as saying the domestic car industry needed to avoid “reckless” price-cutting practices.

The commitment highlights Tesla’s resilience in China, despite strained U.S.-China relations and intensifying competition in the domestic market. Notably, Tesla was the only foreign automaker to sign the commitment letter.

See Also: Best Chinese Stocks

Why It Matters: Tesla and larger players like BYD can absorb the financial impact of price cuts due to their scale of operation. In contrast, smaller companies would face significant profit losses if they were to follow suit. 

Resisting price cuts, however, may result in reduced sales volume for these smaller players, creating a challenging dilemma.

Given China’s significance as a key market for Tesla in terms of demand and supply, the company must align with Chinese policies. 

In fact, approximately half of Tesla’s global deliveries in the second quarter were manufactured in Giga Shanghai.

Earlier this year, Musk visited China for the first time since the COVID-19 pandemic began, where he engaged with key Chinese government officials, underscoring the importance of the Chinese market for Tesla’s operations.

Read Next: Tesla Insider Trade Alert: CFO Zachary Kirkhorn Sold $1M Of Company Stock Ahead Of Q2 Print

Photo by Koshiro K on Shutterstock.