Lead

The domestic auto market in 2024 saw a fierce price war, with automakers deploying every strategy to boost sales through price reductions. This trend is poised to persist into 2025. As employees returned to work on the first day after the Lunar New Year, Tesla took the initiative by launching the Model 3 Spring Festival Gift Pack.

Produced by | Heyan Yueche Studio

Written by | Zhang Dachuan

Edited by | He Zi

Total words: 2482

Reading time: 4 minutes

On the first working day after the Lunar New Year, Tesla announced the introduction of the Model 3 Spring Festival Gift Pack. By initiating a price war, it underscores Tesla's urgency to bolster sales in the Chinese market. The Model 3 Spring Festival Gift Pack covers the entire model range, including the Model 3 Performance version, offering limited-time insurance subsidies of 8,000 yuan and a 5-year interest-free policy, amounting to a maximum discount of over 32,000 yuan.

△Tesla launched the Model 3 Spring Festival Gift Pack on the first working day after the holiday

Xiaomi SU7 surpassed Model 3 in December last year

In 2024, Tesla's sales in China totaled 657,000 units, marking a year-on-year increase of 8.8% and setting a new record. Despite Tesla's global sales experiencing their first year-on-year decline since 2011, its performance in the Chinese market was impressive, accounting for 36.7% of global sales and stabilizing Tesla's position. However, since late last year, the Model 3, a pillar of Tesla's sales, has faced significant challenges. Notably, in December, its sales were overtaken by Xiaomi SU7, raising an alarm for Tesla China. According to data, Xiaomi SU7 sold 25,815 units in December, compared to 21,046 units for the Model 3, a gap of nearly 5,000 units. Furthermore, XPeng's MONA 3 and P7+, which topped the sales chart of new forces in January 2025, also diverted some sales from the Model 3. With the impending launch of Xiaomi YU 7, targeting the Model Y, competition in the domestic pure electric vehicle market will intensify. In this context, Tesla seized the opportunity to reduce prices and promote the Model 3 to lay the groundwork for 2025 sales.

△Xiaomi SU7's sales surpassed Model 3 in December last year

The Model 3 Gift Pack is not an isolated case in China. Li Auto, which ceded the title of domestic new force sales champion in January, offers a 3-year interest-free policy across its entire model range. XPeng Motors has even introduced a policy of a 10,000 yuan red envelope plus a 5-year interest-free and zero down payment plan. Competitors like Zhiji L6 and Geely Galaxy E5 also offer limited-time discounts of 189,900 yuan and comprehensive discounts of 15,000 yuan plus a 24-month interest-free subsidy policy, respectively.

△Tesla introduced significant preferential policies on the first working day after the Lunar New Year holiday

Tesla's situation in European and American markets is not optimistic

Outside China, Tesla's sales in European and American markets have raised concerns.

In California, Tesla's former stronghold and the most aggressive state in the US for electric vehicle policies, new vehicle registrations decreased in all four quarters of 2024. Specifically, there was an 8% decline in the fourth quarter and a 12% drop for the full year. Notably, Model 3 sales plummeted by 36% annually, resulting in Tesla's first annual sales decline in the state. With Musk's full support for Trump during last year's election, Tesla may face rejection from many Democratic voters. Additionally, as GM, Ford, and other automakers begin to introduce electric vehicle models in the US, Tesla's previous dominance will gradually weaken.

△In its stronghold of California, Tesla has witnessed an unprecedented sales decline

In Europe, Tesla's sales decline in January was even more severe. In France, the second-largest automotive market, Tesla registered only 1,141 vehicles, a year-on-year drop of 63%, hitting the lowest level since August 2022. Meanwhile, the French electric vehicle market saw a slight decline of 0.5%, and the overall automotive market declined by only 6.2%, with Tesla significantly underperforming the market. In Sweden and Norway, Tesla registrations were 405 and 689 units, respectively, down 44% and 38% year-on-year, while new vehicle registrations in these markets increased by 14% and 82%, respectively. Additionally, Tesla's sales in the UK, Portugal, Denmark, the Netherlands, and Spain declined by 18%, 31%, 40%, 40%, and 75%, respectively. Tesla's performance was equally poor in Europe's largest automotive market. In 2023, Tesla's sales in Germany plummeted by 41%, while overall electric vehicle sales in the German market declined by 27%.

△In January, Tesla's sales in several major European markets fell sharply

Besides the aging of its products and the continuous launch of new models by competitors, the main reasons for Tesla's sales decline in Europe are also linked to Musk's recent outbursts. Over the past few months, Musk has publicly interfered in European politics, using his social media platform to criticize European leaders from countries like Germany and the UK.

△Musk's public criticism of British and German leaders has sparked dissatisfaction among many European consumers

In the short term, Musk's style is unlikely to change, which will continue to lead to spontaneous consumer resistance to Tesla in Europe. After several years of development, the European automotive market now offers a sufficient number of electric vehicle models for consumers to choose from, ranging from BBA to Volkswagen and Stellantis. These models, during their initial stages, chose the Model 3 and Model Y as benchmark competitors and strived to match or even surpass them in performance parameters. Therefore, Tesla's electric vehicles are no longer as scarce as they once were.

△Competitive models for Tesla continue to emerge in the European market

Can the FSD Pie Be Fulfilled?

During the Chinese Lunar New Year, Tesla released its Q4 2024 financial report. Its revenue for the quarter was $25.71 billion, higher than the $25.167 billion in the same period last year. However, its Q4 net profit was only $2.317 billion, far below the $7.928 billion in the same period last year, with a gross margin of only 16.3%, failing to meet the expected 18.9%.

After the financial report's release, Tesla's stock price plummeted, falling by 5% at one point. However, during the subsequent conference call, Musk dropped a bombshell: In June 2024, Tesla will launch Full Self-Driving (FSD) functionality without human supervision in the US market. Upon the announcement, Tesla's stock price immediately surged, lifting overall market sentiment, and ultimately rising by 6%.

△FSD has become the most critical factor determining Tesla's stock price

With Tesla's new models not performing well, the FSD in its hands can be considered a trump card, but it may also be the only and last one. High-level autonomous driving technology is the brightest gem in the crown of intelligent vehicle technology. If FSD can be successfully implemented in the US, Tesla will establish a technological moat that competitors will find difficult to surpass in the short term, helping Tesla re-establish its global leading position. However, the difficulty of implementing FSD is considerable. Cruise, a subsidiary of General Motors, and Waymo, a subsidiary of Google, have both attempted Robotaxi services in the US. Cruise encountered so many issues that General Motors ultimately decided to abandon the Robotaxi business. Although Tesla excels over traditional automakers in the field of AI and artificial intelligence, the challenges faced by fully autonomous driving on public roads are predictable. Whether FSD can provide an experience far superior to existing Robotaxi models will directly determine Tesla's next steps.

△It is challenging for Tesla to fully implement FSD and establish a successful Robotaxi service

Commentary

For Tesla, it is difficult to launch competitive new models in the short term, and its downturn in the European market is likely to persist for some time. Moreover, the plan to launch Full Self-Driving (FSD) functionality without human supervision in the US market in June this year poses a significant challenge. Therefore, stabilizing sales in the Chinese market is particularly crucial for Tesla. In the absence of new models, price reductions are the most effective strategy. If there is no significant short-term growth in domestic sales, it is not ruled out that Tesla will introduce even more substantial price reductions later. The Model 3 and Model Y have been on the market for a long time, and the costs of previous research and development and molding have been largely amortized, leaving room for Tesla to reduce prices in the future. However, the marginal effect of price reductions has always been diminishing. In the future, how many of Musk's followers in China will continue to pursue Tesla, which is no longer as leading in terms of parameters and performance?

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