Tesla sales for the MIC Model 3 have skyrocketed since the beginning of May. The orders for Giga Shanghai’s sedan has been exceeding 1,000 per day since the month started. The sales staff at Tesla experience centers in China believe the increase in demand could be due to the recent price reduction of the locally-made Model 3.
MIC Model 3 sales picked up again after the Chinese government managed to contain the virus causing the current global pandemic—at least enough to get the economy running again. Since then, consumers have flooded Tesla experience centers and car dealerships. Tesla's sales staff was overwhelmed and surprised by the spike in demand, especially since May has usually been an off-season for new energy vehicles.
According to local media in China, Giga Shanghai’s Model 3 demand is still strongest in first-tier cities like Beijing, Shanghai, and Shenzhen. However, demand for the MIC Model 3 is gaining traction in third-tier cities in China, even though there aren’t usually Tesla experience centers in those areas. Consumers who don't have direct access to experience centers have turned to Tesla’s online configurator to order the locally-made electric sedan.
The rise in demand may have to do with Tesla’s new price for its locally-made sedan. The reduction in price has made the MIC Model 3 more accessible to consumers in the Chinese auto market, making Giga Shanghai’s variant a true mass market vehicle.
Tesla China reduced the Model 3’s price to RMB¥291,800 (US$41,317.19). As a result, Giga Shanghai’s Model 3 qualifies for China’s updated NEV subsidy regulations. After subsidies, the Standard Range Plus variant will cost RMB¥271,550 (US$38,450.65).
Tesla managed to reduce the cost of production with the Model 3 in Giga Shanghai, resulting in the price decrease. It partly contributed to TSLA’s 25.5% gross margin for Q1 2020.
During the Q1 2020 Earnings Call, Elon Musk and Tesla’s CTO Zachary Kirkhorn suggested that the MIC Model 3 could become even cheaper as Giga Shanghai localizes more of its supply chain in China and makes more cost-efficient decisions.
“…the cost of vehicles produced in Shanghai in Q1 is already lower than the cost to produce the Model 3 in Fremont, and there’s still significant opportunity left to take costs out. So fixed cost absorption from higher production volumes, which are occurring in Q2 and will occur through the rest of the year were not fully localized on the supply chain yet. And so while a lot of the supply chain is localized, it’s not complete, and there’s additional opportunities there…” said Kirkhorn.