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Friday, July 19, 2024

Tesla’s China Sales Dip as it Prepares for New Model 3

U.S. automaker Tesla (TSLA.O) sold 64,285 China-made EVs in July, down 31% from a month earlier and the lowest total for the year in the world’s biggest electric car market. However, wholesale vehicle shipments (including local sales and exports) amounted to one of the highest monthly results ever for the country, data from the China Passenger Car Association showed on Thursday.

Those results reflect a steady improvement in the EV market in China as state policy shifts encourage private consumers to switch away from best-selling cars with internal combustion engines. Chinese EV makers have also benefited from a price war as lithium battery prices continue to fall.

The result is that EVs have started taking market share from domestic vehicles with internal combustion engines, even though the overall Chinese passenger vehicle market has lost steam amid slowing economic growth in recent months. China’s EV industry has been helped by central government tax exemptions and incentives and by subnational regulations allowing companies to sell vehicles with lower emission levels.

However, analysts say that the gains will likely slow down as domestic and foreign automakers cut prices in a continuing price war that a decline in battery costs has also sparked. They warn that the market has reached a point where subsidies will no longer be sufficient to propel sales and that further technological improvements in battery capacity and range are needed.

Those analysts also warn that the EV market is vulnerable to a broader slowdown in China’s economy, making it harder for consumers to afford big-ticket items like new electric vehicles. In addition, the sluggish economic recovery in the United States and Europe has hurt global car sales.

In its latest quarterly results, Tesla said it had delivered more than 700,000 EVs between April and June, outpacing the number of vehicles sold by its main competitors in China. However, the firm still posted a loss as it struggled to cut production costs and deliver more cars in a shorter period.

Tesla has slashed the prices of its Shanghai-made Model 3 and Model Y vehicles several times this year to try to revive sales; more might be needed as rivals in China follow with their discounts. The company’s delivery lag between when customers place orders and when they receive their cars has also been cut to a week from a few days at the start of this year. Despite the drop in July sales, Morgan Stanley analyst Adam Jonas believes that Tesla can sustain its growth as it continues to ramp up production at Giga Shanghai and its facilities in Berlin and Austin, Texas. The firm also aims to expand into new markets like Canada.

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