Tesla Keeps Raising Prices for U.S. But Not China

This year has already seen price increases across the board, thanks largely to the supply crisis created in the wake of our response to the pandemic. As it turns out, shutting down the global economy wasn’t ideal for maintaining business as usual and nobody in charge seems all that interested in returning things to normal. Automotive prices have become particularly troublesome, as manufacturing costs have risen and a deficit of product has made this a seller’s market.

Tesla has been raising rates all year, particularly on its higher-volume models. By June, price bumps had become so common with the brand that CEO Elon Musk had to address the matter. He blamed industry-wide supply chain pressures, noting that raw materials had become particularly costly. While a totally rational explanation, there are problems with it when you realize those end-of-line price hikes aren’t being extended to China.

Long Range, dual-motor variants of the Model Y and Model 3 just had $1,000 added to their MSRP — leaving the crossover to start at $53,990, with the sedan coming in at $49,990. While U.S. customers do have access to a cheaper Model 3, that’s not the case for the Model Y and the car has seen its sticker increase by $4,000 since February. However, this pertains specifically to the U.S. market, as China has not experienced a similar uptick in vehicle pricing.

There is a laundry list of reasons for this. Tesla is focused on growth in China and recently completed Gigafactory 3 in Shanghai where it can manufacturer the Model 3 and Y for less money. It also has substantially more direct competition there and has endeavored to keep prices down to maintain a competitive edge. China accounts for almost half of all EVs sold on planet Earth, whereas the United States represents around 17 percent of the total market.

While a recent analysis from Reuters confirmed that prices have been raised in China, the frequency and amount aren’t equitable to what’s currently being endured by the United States.

From Reuters:

Tesla raised prices for Model Y Long Range at least six times in the United States this year, bumping by $5,500 [since Janurary] to $53,990. In China, the world’s most valuable carmaker raised prices of the Model Y SUV and Model 3 sedan only once this year.

The Model Y version a price tag [sic] of 276,000 yuan ($42,394). The company also has launched promotional campaigns in China such as loan offers.

“I think Tesla is looking to be as competitive as it can be in China. Lower prices will be a part of that aggressive market positioning,” Roth Capital Partners analyst Craig Irwin said. “There is a very large difference in battery prices in the U.S. and China, as well as local vehicle manufacturing costs.”

That’s true of most automakers. Vehicles are simply cheaper to produce in China and companies frequently equip them with hardware that’s a little easier on the corporate pocketbook. Some Chinese-made Tesla products use a different (see: cheaper) battery chemistry from CATL and have been alleged to offer lesser fit and finish than their U.S. counterparts. But the company’s quality control has always been a little erratic and it has de-contented Western models in the past by removing some of the sensing equipment used for the Autopilot suite.

Granted, pricing does come down in practically every market once you’ve accounted for government subsidies. But it still feels like other markets are taking the hit so Tesla can keep plugging away at making sure it’s a success in China.

On the one hand, it’s difficult to chide Tesla for engaging in the same business practices we’ve seen legacy automakers adhere to for years. Everyone wants a shot at China. But it’s different when the automaker’s entire lineup benefits heavily from the current regulatory environment and the business is propped up by government subsidies. Though it may be better to take that up with the people who enabled it, rather than those who have managed to exploit it.

We’re not really sure what’s fair or prudent here. While China is a massive country with an assumed growth potential that makes investors salivate, Tesla’s share of the market declined from 18 percent in 2020 to 11 percent in the second quarter of 2021. Despite losing some ground in the United States during the same timeframe, Teslas still represent the overwhelming majority of domestic EV sales.

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