Tesla's sales in China have tumbled and its slumping economy may not be to blame, Bank of America says

• Tesla sales in China have slumped - and it's faltering economy may not be the reason why, according to Bank of America.
• That's because demand for Tesla rival BYD rose 4%, while Tesla deliveries dropped 31% month-over-month in July.
• It suggests demand for Teslas in China is waning in the face of local competition.

Tesla sales in China have slumped showing its aggressive price cuts are no longer proving fruitful, according to Bank of America.

In a recent note, the bank highlighted Tesla Model 3 and Model Y deliveries in China dropped by 31% month-over-month in July, while its largest EV competitor in China, BYD Auto, grew 4% month-over-month.

"TSLA experienced several months of strong demand in China after it lowered prices in December 2022 on the Model 3 and Model Y by 13.5% and 10%, respectively, but the demand reversal in July suggests those initial gains may be temporary," John Murphy, a Bank of America research analyst, said.

Tesla has repeatedly dropped prices of its vehicles over the past year, in a bid to undercut rivals and boost market share. The cuts were initially a success story in China, stoking demand in comparison to BYD. In January this year, a Wedbush survey even found that 70% of consumers in China said they were incentivised to buy a Tesla because of the price cuts.

But now, the wheels have turned in favour of BYD.

"With the 31% MoM drop, TSLA's July deliveries on absolute basis were well below the YTD average of ~80k and closer to the level seen in early 2022. Meanwhile, BYD, which is TSLA's largest EV competitor in China, showed its 6^th straight month of positive MoM growth in July," Murphy said.

"This seems to indicate that the drop in demand for TSLA vehicles was not driven by broader economic factors in China," he added.

So it seems Tesla may have a China problem.

Growing demand for BYD comes despite a worsening economic backdrop in China. The country's economy has slipped into deflation, with shop and factory prices both falling last month. The data is the latest red flag for Beijing, which is also struggling with stuttering growth, a property-sector crisis, and surging youth unemployment.