Tesla has cut starter prices for its Model 3 and Model Y cars by as much as 9 per cent 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, posted in listings on the electric vehicle (EV) giant’s China website on Monday, are the first by Tesla in China in 2022, and come after Tesla began offering limited incentives to buyers who opted for its insurance last month.

Shares of the Austin, Texas-based firm were down 3.3 per cent at $207.36 in trading before the bell. The price cuts also follows Tesla Chief Executive Elon Musk’s comment last week that “a recession of sorts” was under way in China and Europe, and Tesla said it would miss its vehicle delivery target this year. Musk told analysts last week that demand was strong in the current quarter and that he expected Tesla to be “recession-resilient”.

China Merchants Bank International (CMBI) said Tesla’s price cuts underlined the growing competitive risk for EV makers in China, with industry-wide sales projected to slow into 2023.

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

CMBI analysts warned last week that 2023 would bring more competition to the EV sector, saying it expected to see sales growth for EVs and hybrids on a combined basis to drop below 50 per cent.

Tesla had cut prices in China last year in an effort to be more competitive in the country, while in the United States, its largest market, the EV maker has raised prices over the past year on higher cost of raw materials. Data on Monday showed retail sales in China grew 2.5 per cent in September, below the expected 3.3 per cent rise and less than half of August’s 5.4 per cent growth.

The US automaker and several Chinese rivals have hiked prices several times since last year amid rising raw material costs. But Tesla has regularly adjusted prices of its cars in China, including reductions, reflecting government subsidies.