Tesla Refreshes Model 3 and Slashes Prices of Top-End Cars

(Bloomberg) -- Tesla Inc. revamped the Model 3 sedan with sleeker looks and longer range while slashing prices of its premium vehicles in an all-out push to boost sales.

The automaker slimmed down the front end of its entry sedan in the first major face-lift of the Model 3 since it went into production six years ago. The car is rated to go 606 kilometers (377 miles) on a charge in China, a 9% improvement. Other upgrades include a new 8-inch rear touch screen and added speakers to the sound system.

Hours after the long-anticipated unveiling, Tesla made steep cuts to the Model S sedan and Model X sport utility vehicle in the US and China, and lowered the price of the driver-assistance system marketed as Full Self-Driving by $3,000, to $12,000.

Tesla is now charging $74,990 for the base Model S and $79,990 for the Model X, according to its US website. The two vehicles began the year with starting prices of $104,990 and $120,990, respectively.

Dropping the base Model X below $80,000 makes the SUV eligible for the $7,500 federal tax credit revived by the Inflation Reduction Act.

Tesla shares slipped 0.6% as of 9:35 a.m. Friday in New York trading. The stock has more than doubled this year.

Read More: Tesla Price Cuts Continue Even as Interest Rates Relent

While the revamped Model 3 comes with a heftier-than-expected 259,900 yuan ($35,800) price tag in China — 12% more than the older version — a refresh was needed to keep up with domestic rivals including BYD Co., which aims to sell 3 million vehicles this year, as well as Nio Inc. and Xpeng Inc., which are expanding their lineups.

“Tesla has discovered that to win in China's hyper-competitive EV market, you must race faster than anywhere else in the world,” said Bill Russo, a former Chrysler executive who's now chief executive officer of Automobility Ltd., a Shanghai-based consultancy.

Read More: Elon Musk Expects Tesla's Main Rival Will Be a Chinese EV Maker

Selling a model that hasn't been updated in six years in such a market is the automotive equivalent of buying an older iPhone, Russo said, adding that it will be “very challenging” to sustain a higher price point for the new version and still sell significant volume.

“If you're not the latest and greatest, you are left with price discounts as your only weapon,” he said.

What Bloomberg Intelligence Says

Tesla's higher-than-expected price for its redesigned China-built Model 3 could ease concerns that BYD, Xpeng, Nio and other rivals might need to cut prices further to sustain their order and sales momentum.

— Joanna Chen, Steve Man

Click here to read the research.

Deliveries from Tesla's Shanghai plant fell to the lowest this year in July, after the company announced it was scheduling downtime for factory upgrades. The carmaker then cut prices multiple times in a matter of days last month, reigniting a price war in China that has eroded profit margins.

Read More: Tesla Started a China Price War That May Destroy Some Carmakers

Local rivals including Xpeng and Geely Automobile Holdings Ltd.'s Zeekr brand have also marked down models and launched new products to compete head-on with Tesla, while Nio has pledged to launch the first product of its new mass-market brand as soon as next year.

Musk first unveiled the Model 3 to enormous fanfare in March 2016, then famously labored through months of “production hell” as the company struggled to ramp up output.

The updated model is live on Tesla's order pages in China, Europe, the Middle East and Australia, though not yet in the US.

--With assistance from Sean O'Kane, Dana Hull and Danny Lee.

(Updates with shares trading in the sixth paragraph.)

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