Tesla Steps Up China Market Promotions; Can EV Business Bottom Out and Rebound?

TradingKey - On February 26 local time, Tesla (TSLA) Tesla China announced that for orders placed by March 31, select models will qualify for 7-year ultra-low interest and 5-year zero-interest financing plans, alongside insurance subsidies.

Tesla's Dilemma

In 2025, Tesla's global delivery volume was surpassed by BYD, and its sales in China also declined. Tesla has introduced several new models to boost sales in the Greater China region. Grace Tao, Tesla's Vice President of Global External Affairs, attributed the sales decline to production capacity constraints caused by product iterations. Furthermore, the progress of Tesla's FSD entry into China is drawing significant attention.

Based on 2025 sales data, the Chinese market remains one of Tesla's most critical single markets globally. Any sustained weakness in Chinese sales would not only impact revenue but also pressure global capacity utilization and fixed cost amortization. In other words, demand elasticity in the Chinese market is directly linked to the stability of Tesla's overall profit margins.

The Real Significance of Financial Promotions

The introduction of the 7-year ultra-low interest and 5-year zero-interest financing plans is essentially a move to lower the barrier to entry through financial tools, rather than directly cutting official MSRPs. Compared to straightforward price-cut strategies, financial subsidies are more conducive to maintaining the brand's pricing architecture, while the impact on gross margins remains relatively manageable in terms of accounting treatment.

However, the financial costs must ultimately be borne by the automaker or its financing partners.

From a capital markets perspective, investors are more focused on whether profit per delivery continues to face pressure. Tesla's global automotive gross margins have retreated from their peaks over the past two years; if a sales rebound is built on sustained subsidies, the market may view it as a continuation of "trading price for volume" rather than a natural recovery in demand.

Competitive Landscape and Pricing Pressure

Competition in China's new energy vehicle (NEV) market continues to intensify. Beyond BYD, several domestic brands are rapidly advancing in autonomous driving, battery technology, and price point positioning. The price war shows no significant signs of easing.

As a foreign brand, Tesla retains advantages in brand equity and technical image, yet it faces more direct competition in the mainstream 200,000 to 300,000 RMB price range.

From a valuation logic standpoint, the market's pricing of Tesla is no longer based solely on vehicle sales but also incorporates long-term expectations for autonomous driving, energy storage, and robotics.

Therefore, a continued slowdown in the EV business will impact the overall risk premium. Especially against the backdrop of decelerating delivery growth in 2025, investor tolerance for the "growth narrative" has diminished.

FSD Implementation in Greater China Remains a Key Variable

The rollout progress of Full Self-Driving (FSD) in China is seen as a major catalyst for Tesla's mid-to-long-term valuation. Once advanced driver-assistance features receive regulatory approval and are deployed at scale, per-vehicle software revenue and subscription models are expected to improve the earnings structure. However, challenges such as data compliance, regulatory approval, and localization adaptation remain.

If FSD progress goes smoothly, the recovery in sales volume driven by financial promotions could be amplified by increased software revenue, creating expectations for a cyclical improvement in performance. Conversely, if progress in autonomous driving falls short of expectations, relying solely on price and financial incentives will be insufficient to support high valuation levels.

Summary

In the short term, this round of promotions will help stabilize order cadence and alleviate quarterly delivery pressure. The market will focus on whether Q1 2026 delivery data in China shows sequential improvement. If sales stabilize and rebound, investors may reassess the resilience of demand in the Chinese market.

Regarding the long-term narrative for the EV business, the key lies in whether gross margins stop falling and if FSD software revenue can provide incremental growth. If the core EV business regains growth momentum, it will help mitigate market concerns regarding a valuation correction; if sales recovery remains dependent on subsidies, the risk premium may stay elevated.

Overall, Tesla's decision to ramp up financial promotions is more of an interim measure to stabilize demand. Whether the EV business has truly bottomed out still requires verification through subsequent delivery data and earnings performance.