Tesla stock price drops as China cuts subsidies for new-energy vehicles

Shares of Tesla (NASDAQ:TSLA) dropped around 3.5% after the electric car giant was forced to raise prices of its Model 3 after China started a three-year program intended to scale down subsidies for purchases of luxury electric cars.

Fundamental analysis: China cuts subsidies, forces Tesla to revert its price cuts

Tesla decided to revert its decision to cut the price of its Model 3 after China started to implement a new program to scale down subsidies for the luxury electric cars. The Model 3 Sedan will now cost 303,550 yuan (US$42,874), compared with 299,050 yuan a week ago, while the Long Range Model 3 will see its price increase by 1.5% higher to 344,550 yuan.

“The price rise will have only a short-term impact on Tesla’s sales. An extra 4,500 yuan will not be enough to make those middle-class buyers change their minds if they are fans of Tesla cars,” said Tian Maowei, sales manager at Yiyou Auto Service in Shanghai. 

The imported Model 3 used to cost 377,000 yuan, before Tesla started receiving subsidies from the central and local government. 

After a decade of subsidizing purchases of electric vehicles, China has decided to change its policy regarding the EV sector. The subsidy program was regarded as one of the key factors in making China the biggest market for new-energy cars.

China said it will cut subsidies by 10% this year, followed with further cuts in the next two years. However, these cuts will only affect high-price vehicles such, while vehicles costing below 300,000 yuan will continue to receive subsidies. 

Moreover, China said it will expand government purchases of NEVs – battery-powered electric, plug-in hybrid and hydrogen fuel-cell vehicles.

Technical analysis: Shares of Tesla trading sideways

Tesla stock price is trading around 3.5% lower after China’s decision to cut subsidies for EV by 10%. Shares of the electric giant have recovered majority of coronavirus-triggered losses in the past few weeks.

On the upside, Tesla stock price is facing resistance around the $775 mark, where the most recent rebound stalled. Moreover, the descending trend line comes around $830, adding a further layer of resistance above the $800 mark. Looking lower, the support block between $650 and $670 should provide enough support for the bulls. 

Summary

Tesla shares dropped around 4% lower after the Chinese government decided to cut subsidies for luxury electric cars by 10%, forcing the electric car giant to revert the decision to cut prices of its Model 3.