Tesla's move to drop prices of all its models in the US and the Model 3 and Model Y in its biggest overseas markets – China and Europe – is beginning to have a ripple effect on the EV market.

We've already seen prices of used Tesla vehicles go down in the US, and now it looks like competitors are starting to react to Tesla's move as well. An EV pricing war seems to be brewing, for now in China, the world's largest market for electric vehicles. 

After Tesla slashed Model 3 and Model Y prices by up to $7,000 earlier this month – the second cut in recent months – Chinese EV startup XPeng also reduced prices on some of its most popular models. Effective January 17, the massive price cuts of up to 13 percent were announced in a notice on its official WeChat account.

The brand's best-selling sedan, the XPeng P7, now starts at 209,900 yuan ($31,000), 30,000 yuan ($4,500) lower than before (down 12.5 percent), while the starting price of the Xpeng G3i SUV dropped to 148,900 yuan ($22,000) from 168,900 yuan (a 12 percent decrease).

The price of the most affordable XPeng P5 sedan has also been slashed by 13 percent to 156,900 yuan ($23,200), from 179,900 yuan before. Prices for the recently unveiled XPeng G9 flagship SUV stay the same.

In a statement to InsideEVs, XPeng said the price cuts will broaden the appeal of its TVs to Chinese customers and increase their competitiveness.

"The pricing adjustment is part of our approach to making smart EVs accessible to more customers, a mission that we set at the beginning of the company's inception. 

The move will increase the competitiveness of our current products, allowing a broader spectrum of users to experience the intelligent features, and creating a more favorable momentum ahead of our new product launches.

We also strive to improve efficiency, and reduce the cost of new technologies to our customers, while ensuring that customer needs and preferences are at the center of our innovation."

Besides slashing prices, XPeng also streamlined the lineup by reducing the number of trim levels for the G3i and P7. 

To appease dissatisfied buyers who took delivery of an XPeng P5, P7 or G3i in the year before the cuts, the company said it would offer a free four-year maintenance extension as compensation and a warranty extension to 10 years or 200,000 kilometers (124,000 miles).

XPeng's move to cut prices follows a similar decision from Aito, the premium car brand backed by Huawei and Seres. On January 13, Aito slashed prices by as much as 30,000 yuan (US$4,500) on three versions of its M5 and M7 models.

Expect to see more Chinese EV brands cut prices in the coming weeks as competition is heating up in the EV segment amid forecasts for dwindling demand in the first quarter. EV makers are under pressure to cut prices to sustain sales volumes, despite the fact that many of them are still not profitable.

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