BEIJING, September 5 (TMTPost)— Tesla, Inc. was well on track of to intensify price war while unexpectedly set a higher price for an updated popular model in China.

Credit：Tesla

Tesla launched two versions of new Model 3 in China, the first major upgrade since the midsize electric vehicle (EV) was first revealed in 2016. This is also Tesla’s first change to its mass-market car line-up since it rolled out Model Y, another best-seller, in 2020.

The revision offers sleeker look, rear screen, refined interior design and more range, in line with the recent reports. The revamped Model 3 has a sleeker front fascia, part of a package of aerodynamic improvements. Other outside revisions include narrower headlight shape, more recognizable LED daytime running lights, and new multi-spoke aluminum alloy wheels. There are two colors-- Stealth Gray and Ultra Red for the new model. It refined the interior with new acoustic glazing on the windows to lessen wind noise, an updated central touchscreen, a second, eight-inch screen for rear passengers, a redesigned center console, such as to move the turn signal control to the steering wheel, and to add the gear shift control to the central control screen.

Longer range, a main feature of new Model 3, reflects aerodymainc improvements Tesla made.  The rear-wheel drive (RWD) version has a CLTC, or China Light Duty Vehicle Test Cycle, range of 606 kilometers (km), 9% up from the previous’ 556 km, while the dual-motor, all-wheel-drive version (AWD) is rated to go 713 km on a charge, a 5.6% improvement up the older version.

Tesla started pre-order last Friday and expected to begin deliveries in the fourth quarter this year. For Chinese consumers and market observers, the most unexpected of Tesla’s launch is that U.S. EV giant raised the starting price for the entry offering. The RWD version was priced at RMB259,900 (US$35,800), RMB28,000, or 12% higher than price of the older version, while the AWD version now costs RMB395,900, RMB36,000, or 10.8% cheaper than the older. Prices in Japan, Australia and Germany are also higher than they were for the previous model.

While revamped Model 3 RWD version isn’t cheaper as some watchers and analysts expected, Tesla lowered two premium products in U.S. and China, two biggest markets. It offered the starting price of RMB698,900 for its basic Model S and RMB738,900 for the entry-level Model X in China, cutting by around 14% and 21% respectively. Prices of their higher-end versions, the Model X Plaid and Model S Plaid, were sold at RMB828,900 and RMB838,900, representing the reduction of 20.8% and 19.4% respectively.

New launch reflected Tesla’s ambition to boost margin while the steeper cuts highlighted the rigid competition the U.S. automaker faced in China. It lowered price by up to 13% in the country on January 6, making the starting price of Model Y and Model 3 down to new low and about 43% and 30% cheaper than those on sale in U.S. Tesla China surprisingly raised prices twice in four days in May after CEO Elon Musk signaled more cuts to come at the earnings call in April.  But Musk suggested in July that his company still could further cut prices despite the earnings in the second quarter severely dented by major price cuts.

Tesla's gross margin fell 6.8 percentage points year-over-year to 18.2% in the quarter ended June 30. That was the lowest margin in four years, highlighting the profit was severely dented by major price cuts. Musk played down the weakened margin at a conference following the quarterly earnings. "The short-term variances in gross margin and profitability really are minor relative to the long-term picture. Autonomy will make all of these numbers look silly," Musk told analysts. The executive said his company will have to keep cutting the prices of its vehicles if interest rates continue to rise.

Tesla announced in August that it has reduced the starting prices for certain Model Y long-range and performance versions by RMB14,000 (US$1,935), or down 4.5% and 3.8%, in China. Following the cuts that day, two versions now cost as low as RMB299,900 and RMB349,900, respectively. Tesla said it also would offer insurance subsidies of RMB8,000 from August 14 to September 30 for purchases of the entry-level, rear-wheel-drive versions of the Model 3 vehicles in inventory.