Tesla, EV Rivals Absorb Costs As China Ends Subsidies

China’s decision to end a more than a decade-long subsidy for electric vehicle purchases has forced automakers, including Tesla, to deepen discounts to maintain sales as demand eases in the world's largest market, Zhang Yan and Brenda Goh reported for Reuters.

Photo Insert: As some consumers rushed to take advantage of the subsidy while there was time, BYD doubled its retail sales in China in December from a year earlier, while Tesla's retail sales in China fell by 42%.

As China grapples with the upheaval of an upsurge in COVID-19 cases and its economy grows at the slowest pace in decades, Tesla, Xpeng, and SAIC-GM-Wuling) have opted to hold consumer prices flat in January.

The subsidy accounted for around 3% to 6% of the cost of the best-selling electric vehicles in China last year, a Reuters analysis found.

Other EV makers, including Tesla's larger rival BYD and SAIC-Volkswagen, have raised prices for some models but opted to absorb most of the cost of the subsidy, the Reuters tally showed.

The subsidy, paid to the automaker at the point of purchase, began in 2009 and was scaled back over time. It paid out nearly $15 billion to encourage EV purchases through 2021, according to an estimate by China Merchants Bank International.

As some consumers rushed to take advantage of the subsidy while there was time, BYD doubled its retail sales in China in December from a year earlier, while Tesla's retail sales in China fell by 42%.

J.P. Morgan said in a research note on Thursday, it expects "a transitional pain period," with January and February industry-wide sales of EVs and plug-ins in China down between 40% to 60% from year-end levels.

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