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Electric automobile and renewable energy products manufacturer Tesla Inc (NASDAQ:TSLA) is making moves in China. Following the global economic disruption ushered in by the coronavirus, Western economies are now feared to either have entered or have serious chances to enter a recession – where consumer spending for goods, products and services that are deemed luxurious being feared to drop.
Santa Clara chip giant Intel Corporation's latest earnings release for the first quarter of the calendar year 2020 ushered in this fresh wave of pessimism for the semiconductor industry. For Tesla, even as we've got some days left before the company's management is officially obligated to provide updates to its operating environment, the future looks equally, if not more uncertain – as far as the West is concerned.
Subsequently, the company's focus needs to be on China, and now, Tesla has raised prices on two Model 3 variants assembled in its Shanghai-based Gigafactory 3. The move comes after the Chinese government's planned cut in electric vehicle subsidies in the country started to come in effect yesterday.
Tesla Hikes Model 3 Prices in China Following Withdrawal of Government Subsidies
This shift spotted by Reuters' excellent eye, applies to the Standard and Long Range Model 3 variants. Following the successful ramping of operations in the China Gigafactory, Tesla expanded its portfolio in the country earlier this month, with the newest additions to the vehicle lineup being the long-range Model 3 that is witnessing a price hike today. The China-made Model 3 lets purchasers save roughly 100,000 Chinse Yuan over vehicles that Tesla imported from the United States.
The move to drop prices locally came at the right time as following the Chinese government's decision, the long-range Model 3 will witness a 5,000 Yuan price hike. Tesla's vehicles have been insanely popular in China, even as the economic giant fought the coronavirus in the first quarter of 2020. Additionally, the standard range Model 3 will see a 4,500 Yuan hike, with the car's retail price standing in at 303,550 Yuan for the entry-level variant.
With the coronavirus shock paralyzing Western economies, the big question on everyone's mind as we continue to navigate through a treacherous 2020 should relate to the extent of its reliance on China, especially during the second and mid-third quarters of this year. Prior to the recent purchasing power shrinkage, Tesla's management had hoped to ship 500,000 vehicles during this year. This prediction is looking increasingly unlikely, particularly due to the fact that Tesla is under-equipped to fully cater to the Chinese market.
While subsidies in China were cut on the 23rd of this month, there is a three month transitionary period before they fully come into effect. Following the move, consumers who will purchase electric vehicles that cost less than 300,000 Yuan will see the effect of a governmental cushion on their retail price.
Tesla's Shanghai Gigafactory 3 is capable of manufacturing roughly 156,000 vehicles during the course of a year, a figure that does not even cover half of Tesla's aforementioned vehicle shipment estimate. The Chinese electric vehicle market is slowly recovering, as sales only dropped by 51% in March, as opposed to the 65% shrink that the sector witnessed in February when lockdowns necessitated by the deadly coronavirus outbreak paralyzed activity in the country.
As we head into an uncertain year, Tesla's management and investors need to keep an eye out for Europe's recovery, which looking at the current scenario might not be as fast as China's.