Tesla (TSLA) China dilemma: rising output, weak domestic demand, intense price war
- Shanghai-made Tesla shipments rose 9% in January to 69,129 units, yet China-produced sales fell 4.8% in 2025.
- Tesla's Model 3 costs ~235,500 yuan—three times BYD Seal—prompting five-year 0% loans and seven-year ultra-low financing.
- Shipment gain driven by factory throughput and exports, while Tesla ranks third behind BYD and Geely domestically.
Tesla's China dilemma: output up, demand lukewarm
Shanghai-made Tesla shipments rise 9% in January to 69,129 units, according to China Passenger Car Association (CPCA) data, yet the company is confronting weakening domestic demand and an intense price war. The Shanghai Gigafactory, which produces Model 3 and Model Y for China and export markets, boosts Tesla’s global capacity, but the shipment gain contrasts with a 4.8% fall in China-produced Tesla EV sales in 2025. That decline makes Tesla one of only two Beijing manufacturers to post year-on-year drops, underscoring pressure from lower-cost local rivals.
Tesla’s pricing gap is stark: a base Model 3 at roughly 235,500 yuan ($33,943) sits nearly three times higher than BYD’s Seal at about 79,800 yuan. To defend market share, Tesla is rolling out aggressive purchase incentives in China, including five-year 0% interest loans and seven-year “ultra-low” interest financing for orders placed before Feb. 28. Analysts say those moves reflect market strain rather than healthy demand: “We have really intense price wars,” says Abbie Tu of S&P Global Mobility, noting sustained discounting across the market.
The shipment uptick from Shanghai thus appears driven more by factory throughput and export commitments than by robust local consumption. Tesla remains third in January shipments behind BYD and Geely — 205,518 and 124,252 units respectively — but the company faces the dual challenge of protecting brand positioning while matching aggressive domestic pricing strategies from rivals that benefit from lower cost structures.
Wider market cooling and policy signals
China’s new energy vehicle sector is slowing, with January sales growth of just 1% year-on-year, the fourth consecutive month of deceleration, prompting government and industry calls to avoid further destructive price cuts. The CPCA release on Wednesday adds weight to policymakers’ repeated appeals for stability in incentives and pricing strategies.
Exports and registration trends
The Shanghai plant’s output continues to feed Europe and the Asia-Pacific, but the CPCA and Reuters note only slight increases in European registrations, suggesting limited demand pickup abroad. As Tesla balances export commitments with intensified domestic incentives, the outcome in China will be pivotal for its regional strategy and global production planning.
