Tesla to drop price of Model 3 in China to access electric vehicle subsidies

Elon Musk says Tesla will drop the price of the Standard Range Model 3 in China from Friday so that it will be eligible for China’s “new energy vehicle” subsidies.

Speaking at the company’s earnings call for the first quarter of 2020 on Thursday (Australian time), Musk said he was excited to announce the price drop.

China’s electric car market has suffered a blow over the last three quarters after the Asian economic leader dropped subsidies for electric vehicles.

Recent reports that China’s government was considering extending subsidies as a response to boost the economy in the wake of the Covid-19 crisis left some wondering if non-domestic auto makers, including Tesla, would be left out in the cold.

The 2 year extension ultimately included only vehicles costing RMB300,000 ($A64,85) or less. Currently, the base price for the Standard Range (SR) Model 3 made at Tesla’s Shanghai factory is RMB323,800 ($A69,995 converted).

Musk credits Tesla’s ability to drop the price of the SR model with the ongoing improvements in production efficiencies.

“We’ve are making rapid progress on lowering the production cost in China,” the Tesla CEO and co-founder said.

“We are excited to announce on this call we will be reducing the price of the Standard Range Model 3 tomorrow,” he said adding this refers to China’s time zone.

“That price will be below the subsidy levels. We feel confident that will be a vehicle that delivers a gross margin,” he said.

Tesla’s chief financial officer Zachary Kirkhorn added that the cost of making vehicles in Shanghai is already lower than the cost to produce the Model 3 in Fremont and there is opportunity to further reduce costs in fixed cost absorption and further localisation of components.

“We will continue to bring the price down….even with this reduction in price,” Kirkhorn said.

The company is also working on increasing production efficiencies and therefore reducing production costs for its Model Y crossover that first hit the US market in mid-March.

In the company’s Q1 2020 deck it shared images of improvements in the Model Y rear underbody, which shows compares the Model 3 underbody made from 70 pieces to the Model Y, which is now made of two pieces and will eventually consist of a single casting according to Musk.

“We have introduced a revolutionary two piece casting,” said Musk at the earnings call.

“We are going to be making a single piece casting later this year. Essentially the rear third of the body is cast as a single piece. No casting of this size and complexity has ever been done before.

“In fact, there is nothing on par with the two piece casting for the Model Y. We are really pushing our vehicle structural engineering and manufacturing. We are very excited about this as it allows us to reduce weight, cost and improve NVH (noise vibration and hashness),” he said.

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