After a year of raising prices in most markets, Tesla closed 2022 and opened the new year with major price reductions. The drop in prices seems to have boosted demand in a big way in many areas, though Morgan Stanley says they weren't enough to boost demand notably in China.
China is home to the biggest automotive market in the world and is no stranger to EVs. In fact, Tesla faces more EV rivals in China than anywhere else, and some of the competition undercuts the US EV maker on price.
Morgan Stanley does suggest that Tesla's price cuts helped bring down prices for consumers. This is to say that not only did Tesla reduce its prices, but competitors did as well.
However, the firm believes that the most recent pricing reductions needed to be more aggressive to have a sizable impact, due mostly to the fact that rivals followed suit and cut prices as well, which kept Tesla's cuts from making its prices more competitive. Morgan Stanley wrote in a note via Teslarati:
“We gauge a full-blown price war would urge consumers to stay sidelined and await more promotions/discounts to come. Vehicles price elasticity of demand is decaying as consumers’ pricing expectation has also been falling YTD. This might pinch the sales resurgence and order-intake that should supposedly pickup in March.”
While Tesla is still considered the EV leader, offering the best lineup and charging infrastructure, several rivals are now producing compelling EVs. BMW, Ford, Nissan, Volkswagen, Chinese rivals, and others all reduced prices or offered incentives to better compete with Tesla.
Morgan Stanley says this is creating a price war that consumers expect to benefit from. Moreover, shoppers may assume the price drops will continue going forward.
Teslarati shares that Tesla delivered over 74,000 EVs in China in February, which marks a 26% improvement month over month. However, January's numbers were low due to holidays and production line improvements, which paused production temporarily.
Do you think Tesla should be concerned about pricing and sales in China? Will Chinese EV makers prove more successful than Tesla going forward? Do you think EV producers from China will begin making their way to the States? Leave us your thoughts in the comment section below.
