Taking advantage of new battery options and big government subsidies, Tesla (TSLA -1.92%) has slashed its Model 3 prices in China. The company's Chinese website is now advertising a base price for the popular battery-electric sedan of 249,900 yuan, or roughly $36,800.

While this is big news for the company in its efforts to remain dominant in the Chinese market, U.S. consumers won't be affected...at least, not yet. 

A Tesla Model 3 with a cityscape in the background.

Image source: Tesla.

Race to the bottom dollar

The new price of the Shanghai-made Model 3 Standard Range Plus represents an 8% discount to the previously listed price of 271,550 yuan, or about $40,000. Tesla factors in Chinese government subsidies for electric vehicles (EVs) when it calculates the base price. 

In the U.S., the base price for the Model 3 Standard Range Plus is $37,990, making the Chinese Model 3 slightly cheaper than the U.S. version. That's largely due to superior government incentives. U.S. federal tax credits for Tesla's EVs were phased out at the beginning of this year. However, Tesla's website claims that "potential incentives" could reduce the U.S. price even further.

Lower price, higher range

Tesla was also able to cut the price by using a different kind of battery

The automaker received approval from the Chinese government in June for the authority to build Model 3s at its Shanghai Gigafactory using lithium iron phosphate (LFP) batteries. LFP batteries are cheaper than Tesla's preferred nickel cobalt aluminum (NCA) batteries because they don't use cobalt, a rare and expensive -- not to mention controversial -- metal.

LFPs, though, are less energy-dense than NCAs, which can affect performance. However, along with the price cut, Tesla bumped the Chinese model's range from 445 km to 468 km, about 290 miles. The U.S. version's range is still listed as 250 miles.