Tesla Unlikely To Cut Model 3 Prices In China, Leaves Door Open For Increases: Report

The streak of price cuts Tesla Inc TSLA has been announcing for its Model 3 vehicles in China since late last year may soon come to an end.

What Happened: With Tesla's localization rate, or the proportion of parts made in China, having hit its target, the electric vehicle giant is unlikely to cut prices in the near future, state-owned Chinese news outlet Yicai Media said, citing Tao Lin, Tesla's China vice president.

The price of EVs largely hinges on the price of raw materials and components, and if these escalate, price hikes of Tesla EVs cannot be ruled out, Lin reportedly said.

Since Tesla began making Model 3 vehicles in China, the company has made five price cuts between October 2019 and October of this year, the report said.

This has taken down the price of Model 3 vehicles from 355,800 yuan ($54,4744) to 249,900 yuan ($38,260) in the country. 

Related Link: Why Tesla Is Unlikely To Buy A Traditional Automaker Outright

With the cost of making a Model 3 EV in China working out to roughly 200,000 yuan ($30,620), the gross margin for the China-made EVs is estimated to be roughly 30%, which is higher than what is achieved with the U.S.-made EVs, the report said.

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Why It's Important: China, according to analysts, is key for Tesla's growth thesis. Following the launch of the Shanghai Gigafactory, the company has made strong inroads into the Chinese EV market.

Tesla has also managed to keep at bay homegrown competitors such as Nio Inc – ADR NIO, and Xpeng Inc – ADR XPEV.

The lack of leverage with respect to pricing could place Tesla at a disadvantage, especially as the Chinese EV makers have come out with guns blazing to take on their foreign rival.

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