The China-made Tesla Model Y is currently priced at RMB 339,900 and is expected to drop in price to RMB 260,000 in the future, a team of Chinese analysts said, adding that the model costs RMB 237,930 to produce and has a current gross margin of 30 percent.

Guosen Securities analysts Liang Chao and Zhou Junhong said in a report released today that the Model Y has more space and upgraded specifications compared to the Model 3. The Model Y is positioned as a more popular SUV for consumers and has a larger potential market than the Model 3.

With the increase in the proportion of China-made parts, the production cost of Model Y will drop to 196,400 yuan, with room for further price reduction, they said in the report.

With 70% parts sharing between Model 3 and Model Y, there is room for a downward adjustment of gross margin in the future. Assuming gross margin remains above 25%, the price is expected to drop 23% to around RMB 260,000, the team said.

The Model Y price is 9% higher than the Model 3 of the same specification, with a 20% premium over gasoline models from BMW, Mercedes-Benz, and Audi.

In China, the Model Y has a high overlap with the price range of comparably positioned new car maker products, which is expected to excite the highly competitive SUV market in 2021, the team said.

The China-made Model Y long-range version is priced at RMB 339,900 after subsidies, higher than the Polestar 2 (RMB 338,000), Xpeng P7 (RMB 230,000), Li ONE (RMB 328,000), WM EX6 (RMB 240,000), Aion LX (RMB 230,000), and Aion S (RMB 262,000), which are lower than the Nio ES8 (RMB 450,000), and Nio ES6 (RMB 344,000), the analysts noted.

The Model Y pricing range is extremely competitive in the domestic EV consumer market, putting more pressure on small and mid-size luxury models from BMW, Mercedes-Benz, and Audi, as well as comparably positioned EV models, the team said.

Guosen Securities also expects a 9.6% reduction in Model 3 production costs compared to the current one as the share of China-made parts increases in the future.

Based on a gross margin of more than 20 percent, the China-made Model 3 price could drop to RMB 204,600 (the current subsidized price of RMB 270,400), or a 24 percent price reduction, the team said.