Tesla Can't Wish Away China Volume Woes Through Price Cuts: Report Flags 'Serious Problem'

China holds the key for Tesla Inc TSLA to defend its dominant share of the electric vehicle market. An aggressive pricing strategy alone may not help the company to rev up things in China after the recent sluggishness, stated a report.

What Happened: As Tesla’s China sales sagged in the later part of 2022 amid the COVID-19 resurgence, the company began a spate of downward price adjustments. The strategy did yield the desired results.

See Also: Everything You Need To Know About Tesla Stock

The EV giant’s sales climbed 10% year-over-year and 18.4% sequentially to 66,051 units in January. The breakup between domestic and export sales was 26,843 to 39,208 units during the month. Domestic sales plunged about 36% month-over-month, which should not raise an alarm as Tesla typically manufactures cars for export in the first half of the quarter before moving to focus on cars for the domestic market.

Despite the not-to-alarming statistics, scratching the surface reveals a problem in hand, a Reuters report said. “Tesla’s facing a serious problem of a very limited product mix,” said Cui Dongshu, secretary general of the China Passenger Car Association, according to the Reuters report.

“Its slowness to respond to Chinese consumers’ preferences has led to a very passive positioning for Tesla to rely on few means such as price cuts to stay competitive,” he reportedly said.

Tesla now sells two variants of Model 3 and three variants of Model Y made-in-China cars in China.

Market Share Erodes: Tesla’s sales may have been on an upward trajectory if the outlier months are taken out of the equation. The company’s market share, however, has shrunk from 15% in 2020 to just 10% in 2022, Reuters said, citing data from CPCA.

Warren Buffett-backed BYD Manufacturing Company Limited BYDDY BYDDF now sells more electric cars than Tesla, if the former’s plug-in hybrids were also accounted for. If only battery EV sales are considered, Tesla is still the volume leader. The Austin, Texas-based company sold 1.314 million vehicles in 2022 compared to BYD’s 911,140 units.

BYD now offers over 60 versions of its new energy vehicles — a combo term used for both plug-in hybrids and BEVs — and smaller rival Nio Inc. NIO has about six models currently, the report said.

"The aging product line is a real problem for Tesla. Once BYD and other EV startups follow to lower prices, the effect of Tesla's price cuts could vanish in the blink of an eye,” said Yale Zhang, managing director at Shanghai-based consultancy Automotive Foresight, the report added.

Price Action: Tesla closed Friday’s session down 5.03%, at $196.89, according to Benzinga Pro data.

Read Next: $1,000 Invested In Bitcoin On New Year's Day Would Have You Made You $318 Richer — But Wait Until You Hear About Tesla