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Tesla Slashes Prices on Model Y in China, Stirring Concern Over Profit Margins

Tesla's recent price cut on specific Model Y versions in China is making waves in the industry, igniting concerns over potential pressure on the company's profit margins.

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Tesla Announces Price Cut on Model Y Variants in China

Tesla has announced a price reduction for its Model Y long-range and performance versions in China starting on Aug. 14. This decision led to a dip in shares amid worries of increased strain on the company's profitability.

Details of the Price Reduction

The starting prices for both the Model Y Long Range and Performance versions have been slashed by 14,000 yuan ($1,934.58). Specifically, the Long Range's starting price has dropped by 4.5% to 299,900 yuan, while the Model Y Performance now starts at 349,900 yuan, a decrease of 3.8%.

Insurance Subsidies and Offers for Model 3 Buyers

In a related announcement, Tesla also revealed it would provide insurance subsidies of 8,000 yuan for buyers of entry-level, rear-wheel-drive versions of the Model 3 inventory vehicle between Aug. 14 and Sept. 30 in China.

Continuation of Tesla's Price Cuts Amid Industry Concerns

These latest price cuts from Tesla follow similar actions taken last month. Such price adjustments have come despite industry pledges in China to avoid abnormal pricing, signaling potential disruptions in the competitive landscape and threats to profitability.

Analysts Predict Further Price Cuts and Margin Pressures

Evercore ISI analyst Chris McNally predicts that Tesla may implement similar selective price cuts in the U.S. and Europe. Such reductions could lead to about 100 basis points of sequential pressure on the company's third-quarter margins.

Tesla's Share Price Reaction and CEO's Statements

Tesla's shares fell by 2.8% in U.S. premarket trade after the announcement. Last month, CEO Elon Musk hinted at further price cuts, acknowledging potential impacts on the company's margins.

Since late last year, Tesla has repeatedly cut prices and offered incentives in various markets, including the U.S. and China, to fend off competition and economic uncertainty. This strategy has seen mixed results, with a 31% drop in sales of China-made Tesla vehicles in July, marking the first month-on-month decline since December.