| 12:01 PM EST

Tesla Cuts Model 3 Prices in China

Tesla lowered the base price of Chinese-built Model 3 electric sedans 9% today. It’s aiming for a 20% reduction by year-end.
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Tesla is celebrating the launch of its new, $2 billion assembly plant in Shanghai by lowering the base price for the Model 3 electric sedans it makes there 9% to $46,500.

The move underscores Tesla determination to quickly boost its sales volume and market share in China. A 9% price cut is only the start. Sources tell Bloomberg News that Tesla expects to slash Model 3 prices a total of 20% by year-end.

Going Local

This week’s price reduction is made possible mainly by not having to ship cars to China from California. The next step: Source more components from domestic suppliers.

Right now, only about 30% of the value of Model 3s made in Shanghai comes from local companies. Song Gang, who heads Tesla manufacturing in China, tells reporters he intends to hike that ratio to 100% by the end of this year.

That would be a monumental achievement, to say the least. Song didn’t reveal how he expects to accomplish it so quickly. Certainly finding local sources for batteries—the single most expensive part of an electric car—would be a big help. Tesla spent last year lining up at least three battery providers.

Tesla has said it expects the Shanghai plant eventually will make its own batteries, which presumably would lower costs even more.

More Output

Cranking up production volume also will eat into per-car costs. Song says the Shanghai factory already has hit an output rate of 1,000 cars per week. That’s an impressive feat for Tesla, which has been legendary for repeatedly missing its own production targets.

Earlier today the company announced it will begin delivering Model 3s to retail customers on Jan. 7. Song predicts the China plant will double its weekly output to 2,000 cars by year-end. By then the facility expects to have added Tesla’s all-new Model Y, a crossover variant of the Model 3.

Tesla’s longer-term goal is to build 300,000 vehicles per year in Shanghai, or about six times the factory’s current output. So far, it’s off to a very encouraging start.

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