Tesla is targeting a specific niche in China’s luxury car market: Buyers who think foreign carmakers consistently overcharge them. The California-based company has set the price for its battery-powered Model S sedans in China at 734,000 yuan, or about $121,280.
This makes the price of a Model S in China about 50% more expensive than in the US, but that’s because of “unavoidable taxes, customs duties and transportation costs,” according to Tesla. Stripping out these costs—$3,600 for shipping, $19,000 for custom duties and taxes, and $17,000 in value-added tax—the price of the car is $81,070, the same price as in the US, before subsidies. With its rivals pricing their luxury models much more bullishly in China, Tesla explained its strategy in a sharply worded statement: ”We know that our competitors will try to convince Chinese consumers that our relatively lower price tag means the Model S is a lesser car, when the real reason their car costs more is that they make double the profit per car in China compared to the United States or Europe.”
The hefty margins commanded by foreign retailers in China, from Apple to high-end carmakers like Audi, Jaguar, and Land Rover, has become a sensitive issue. As Tesla explained, imported luxury cars in China cost more than in other markets because customers face tariffs on the cars as high as 25%, a value-added tax of around 17%, as well as a consumption tax. But even after these costs, the price of imported luxury vehicles is often twice as much in China as in other major auto markets.
Tesla’s pricing strategy may also reflect the fact that nontraditional cars haven’t caught on in China, despite government programs to promote electric and hybrid vehicles. Earlier this month, the electric-car manufacturer also announced it would build a network of free charging stations in the country. Moreover, by keeping the price a little lower than the market would otherwise expect, Tesla’s cars may avoid being branded as one of the conspicuous luxury models that government officials are no longer allowed to be seen in.