Tesla Model Y Will 'Disrupt' The Chinese Auto Market — Here's Why

Tesla Inc’s TSLA Model Y electric vehicle will help boost sales and emerge as a major disrupter of that country’s auto market in 2021, analysts are estimating, as reported by Reuters on Monday.

What Happened: China — the world’s largest car market — saw the launch of the locally made Model Y sports utility vehicles this month for a price of RMB 339,900 ($52,376), which is less than a tenth of gasoline-powered luxury cars with a similar market positioning made by Daimler AG DDAIF, Bayerische Motoren Werke AG BMWYY, and Volkswagen AG VWAGY, according to Reuters.

“The pricing will disrupt the conventional premium cars market and shatter the traditional belief that the cost of an electric vehicle (EV) should be higher,” Cui Dongshu, secretary-general of China Passenger Car Association (CPCA) told Reuters.

See Also: Tesla To Launch $25,000 EV Sedan In China By 2022: Report

Tesla’s Model 3 sedan, which is made in Shanghai, outsold similarly positioned cars made by the luxury automakers in November, as per CPCA data.

Why It Matters: Tesla’s Model Y pricing would set a benchmark for automakers to beat and push demand higher, noted Reuters.

The ongoing pandemic upended New Energy Vehicle (NEV) sales, which are said to have risen 8% in 2020 to 1.3 million — behind the Chinese government’s annual sales target of 2 million.

China Association of Automobile Manufacturers and other analysts project that the sales of NEV — that include battery-electric, plug-in hybrid, and hydrogen fuel-cell cars — to grow 30-40% to near 1.8 million units this year.

The government’s extension of EV subsidies by two years will also drive demand this year as Beijing wants NEVs to make up 20% of auto sales by 2025 instead of the current 5%, as per Reuters.

Nio Rivalry: Tesla, other foreign players, along with domestic competitors such as Nio Inc NIO, Xpeng Inc XPEV are ramping up production to meet the projected demand.

Nio unveiled its first sedan, the et7, during the Nio Day event on Saturday. The company's CEO William Li said this week that the automaker could make cheaper mass-market cars under a different brand.

Li clarified that the EV maker doesn't see its new sedan to be in direct competition with Tesla, but according to Automobility Ltd. CEO Bill Russo, Nio is well-positioned to capture a sizeable chunk of the Chinese EV market.

The et7 pricing being "quite competitive with the Model S" of Tesla is a "statement of aspiration" on the automaker's part, Russo told CNBC on Monday.

Price Action: Tesla shares closed nearly 7.8% lower at $811.19 on Monday and gained 0.9% in the after-hours session.

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