Tesla’s price cuts in China could cost the carmaker the entirety of its operating profit in the world’s biggest electric-vehicle market, Evercore ISI warned in a new report.

The automaker had the most margin to give in North America, where it also marked down vehicles over the weekend, Evercore’s Chris McNally wrote on Monday (Apr 22). Its business in China “may now be breakeven or even negative” on the basis of earnings before interest and taxes, he said.

Tesla also dropped prices in both the US and Germany after disappointing first-quarter sales contributed to swelling inventory. In China, the revamped Model 3 fell to 231,900 yuan (S$43,635) from 245,900 previously – back to its special launch price. The Model Y was discounted to 249,900 yuan, the cheapest it’s been in at least five years.

China’s Li Auto immediately responding with discounts and cash rebates on new models. The company cut prices by 6 per cent to 7 per cent across its lineup, with the L7 sport utility vehicle now starting from 301,800 yuan.

People who have already ordered but not taken delivery of their cars will be entitled to the new price, and Li Auto will offer cash to existing owners of 2024 models. The automaker’s Hong Kong-listed shares fell 8.3 per cent to their lowest close in almost a full year.

China’s EV price war has been running since late 2022, when Tesla started discounting its vehicles. Competition intensified as automakers struggled to meet sales targets, and has shown little sign of abating this year, with market leader BYD marking down some of its most popular cars. Its Seagull hatchback, for example, now costs less than US$10,000.

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Tesla is expected to report a 40 per cent plunge in operating profit and its first revenue decline in four years when it releases first-quarter earnings on Tuesday. Chief executive officer Elon Musk has ordered the company’s biggest layoffs ever and staked its future on a next-generation, self-driving vehicle concept called the robotaxi.

In China, Tesla’s market share shrank to around 6.7 per cent in the fourth quarter of 2023, from 10.5 per cent in the first three months of the year, according to Bloomberg calculations based on China’s Passenger Car Association data.

The automaker recently pared back production schedules at its Shanghai factory, Bloomberg reported last month. Shipments from its Shanghai plant – which makes EVs for China and for export to other parts of Asia, Europe and Canada – declined in the first two months from a year earlier, even as overall passenger-vehicle sales in China increased. BLOOMBERG