By YANG Shihan

US EV maker Tesla raised the price of its Model X and Model S by 19,000 yuan (US$2,750) on Friday. Three days before, the company raised the price of Model 3 and Model Y by 2,000 yuan.

After the price increase, the Model S is now priced from 808,900 yuan and Model X from 898,900 yuan. Neither is manufactured in China. Model 3 and Model Y are much cheaper and are the dominant force in China’s EV market.

Sales over profit

On January 6, Tesla started a price war by cutting prices of all its models everywhere in the world, by as much as 13 percent. In Q1, Tesla sales in China were up 21 percent year on year, but profit dropped more than 20 percent.

In a conference call, founder and CEO Elon Musk and other executives underlined that the company values sales and market share over short-term profit.

What do the customers think?

Sanguine throughout, Musk claims that he didn’t cut prices to beat competitors, but to follow his own strategy.?

“We may sell a car with zero profit in the future,” Musk said.

The sudden price hike came as an unpleasant surprise to buyers and potential buyers – most of whom were expecting a further drop in price. In January, hundreds of Tesla owners protested at showrooms and distribution centers across China, demanding rebates and credit after sudden price cuts, claiming they had overpaid.

Price war against the trend?

It’s not completely obvious what the Tesla strategy really is.?

Musk claims that Tesla is not involved in any kind of price war at all. No one knows what might happen next, but what is clear is that Musk and Tesla are very adept at navigating the Chinese EV market. Today, that market is a very difficult place to survive, let alone thrive.

“Tesla's ability to launch a price war against the trend when the national subsidy was declining and battery costs were high, shows how much it understands the market landscape and its own pricing power,” said CHEN Jia of Renmin University’s international monetary institute.

Small fish swimming against the tide

Chen’s argument cuts little ice at China’s EV startups.?

LI Bin, founder and CEO of Nio, said in April that Tesla might have pricing power in the US as it occupies 70 percent of the EV market, but in China, Tesla owns only 7 percent of the market.?

This could be seen as an argument on Musk’s side of the equation – action by such a small player should have a negligible effect in such a huge and volatile market.?

However, the upward shift in Tesla’s prices once again comes in the face of market logic. The price of lithium carbonate, a key material in EV batteries, has been on the decline and a good number of EV makers have lowered prices accordingly.