Tesla reportedly has cut entry prices for its Model 3 and Model Y cars by as much as 9% in China, reversing a trend of increases across the industry amid signs of softening demand in the world’s largest auto market.

The price cuts, which the Reuters news agency said were posted in listings on the EV maker’s China website, were the first by Tesla in that market in 2022, and came after the automaker began offering limited incentives to buyers who opted for its insurance last month.

The price cuts also followed Tesla chief executive Elon Musk’s comment last week that “a recession of sorts” was under way in China and Europe, and the automaker said it would miss its vehicle delivery target this year.

Reuters noted Musk had told analysts recently demand was strong in the current quarter and he expected Tesla to be “recession-resilient”.

“The price cuts underscore the possible price war which we have been emphasising since August,” CMBI analyst Shi Ji told Reuters.

Tesla had cut prices in China last year in an effort to be more competitive in the country, while in the US, its largest market, the EV maker had raised prices over the past year on higher cost of raw materials, Reuters noted.

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By GlobalData

The report said data on Monday showed retail sales in China grew 2.5% in September, below the expected 3.3% rise and less than half of August’s 5.4%.

Tesla and several Chinese rivals had hiked prices several times since last year amid rising raw material costs though Tesla had regularly adjusted its car prices in China, including reductions, reflecting government subsidies.

It is now China’s third best-selling EV maker after BYD Motor and SAIC-GM-Wuling and is the only foreign brand in the top 15 list published by the China Passenger Car Association, the news agency said.

“The price cut is primarily due to overall soft auto demand in China due to macro condition and competition with leading local player BYD,” US. Tiger Securities analyst Bo Pei told Reuters, adding XPeng , Nio and Li Auto would have to follow or face greater pressure on volume.

Tesla, meanwhile, told Reuters it was adjusting prices in line with costs. Capacity utilisation at its Shanghai Gigafactory had improved while the supply chain remained stable despite the impact on the economy of China’s stringent zero-COVID restrictions, leading to lower costs.

Reuters said the starting price for the Model 3 sedan was reduced to CNY265,900 (US$36,727) from CNY279,900 while the Model Y SUV was cut to CNY288,900 from CNY316,900.

The report also noted Tesla upgraded its Shanghai factory earlier this year after which it delivered 83,135 China built EVs in September, setting an output record for the plant since production began in December 2019.