Tesla launches new Model 3 in China with higher price tag

SHANGHAI/SAN FRANCISCO (Reuters) -Tesla shares fell nearly 6% on Friday after the electric automaker unveiled a restyled, China-made Model 3 with a higher price, while slashing prices of its premium vehicles and its "Full Self-Driving" (FSD) software.

The launch of the new Model 3 sedan marks the first time the automaker has rolled out a vehicle in China ahead of the United States, underscoring its growing reliance on the country where it is in a race for market share with BYD.

The vehicle is being built at Tesla's Shanghai plant and comes with a starting price that is 12% higher than the previous, base model in China. It will also be exported to other markets in Asia, Europe and the Middle East.

Raising the base price on the Model 3, Tesla's top-selling model after the Y, could help protect margins. But the price cuts for its more premium cars highlight the intense competition EV makers face, especially in China.

The automaker led by Elon Musk has started a price war this year that has boosted deliveries but sent its industry-leading margins to a four-year low.

The exterior design of the refreshed Model 3 does not look dramatically different from the previous one, Guidehouse Insights analyst Sam Abuelsamid said.

"The market thinks that this may not be enough" to revive sales in the face of slacking demand and rising competition, he added.

Tesla shares were trading down 5.8% at $243.06 by late afternoon, compared with a nearly flat broader market.

FSD PRICE CUT

Tesla cut the prices for its premium Model S and Model X by between about 14% and 21%, in China and the U.S. - its two biggest markets.

By dropping the starting price of the Model X to $79,990 in the United States, Tesla made the sport utility vehicle eligible for federal tax credits of up to $7,500.

Tesla's much-touted FSD software, technology which has been in the crosshairs of regulators over safety concerns, now costs $12,000, down 20% and well below the $15,000 Musk in July said would be a low price.

Abuelsamid, who expects further reductions, said the FSD price cut was an indicator that consumers are "not convinced", despite Musk's argument that a car's value increases dramatically if it's autonomous.

"It's nowhere close to being at the point where the driver can tune out," Abuelsamid said.

CHINA-FIRST DEBUT

The new Model 3 is Tesla's first change to its mass-market car line-up since it launched its global best-seller, the Model Y, in 2020.

Tesla did not announce a launch date for the new Model 3 in the U.S. where it currently offers discounts of more than $5,000 on some of those vehicles in inventory. The Model 3 is also assembled in Fremont, California.

Tesla plans to debut the latest Model 3 at a trade fair in Beijing on Saturday and some of its new features, including a rear display for back-seat passengers, seemed aimed at Chinese car buyers. It said it would also show the new model at the Munich auto show.

Images of the exterior showed small changes that gave the sedan a sleeker front and new headlights.

The new Model 3 also promises a longer driving range of 606 km (377 miles) for the standard version based on China's testing standards, about 9% higher than the base model it replaces in China.

Tesla said it had started taking orders in China, where it would begin deliveries in the fourth quarter, and in other markets where it exports to from Shanghai, including Germany, Japan, Malaysia, Australia and New Zealand.

The new Model 3 should sell well outside China where there is less competition in EVs, said Yale Zhang, managing director at Shanghai-based consultancy Automotive Foresight.

"But in China, we have already seen plenty of new models rolling out since the (Shanghai) auto show in April with similar and even better features and lower prices," he added.

PROJECT 'HIGHLAND'

Reuters first reported last November that Tesla was developing a revamped Model 3 in a project codenamed "Highland". People involved in the project said it was aimed at cutting production costs and boosting the model's appeal.

Tesla did not give any details about the new Model 3's battery, but a person with knowledge of the features said it was the same lithium-iron-phosphate battery from CATL for the base model.

The higher range is the result of taking weight out and improving the car's profile so it faces less wind resistance, the person added. Tesla did not respond to a request for comment on the battery.

In China, the Model 3 competes against BYD's Seal, the Zeekr 001 from Geely, Nio's ET5 and Xpeng's P7i. Xpeng has just announced zero-interest loans and free upgrades for that car.

($1 = 7.2582 Chinese yuan, $1 = 0.9211 euro)

(Reporting by Zhang Yan in Beijing, Hyunjoo Jin in San Francisco, Daniel Leussink in Tokyo, Brenda Goh in Shanghai; Writing by Kevin Krolicki; Editing by Miral Fahmy, Edwina Gibbs, Kirsten Donovan)