What happened

Shares of Tesla (TSLA 2.20%) rose 4.5% on Thursday after the electric vehicle maker dropped the price of its Model 3 sedan in China. 

So what 

Tesla cut the base price of the battery-powered Model 3 by 8% to 249,900 yuan (approximately $36,800), after factoring in Chinese government subsidies. That puts it slightly below the price of a similar version of the vehicle in the U.S., prompting speculation that Tesla could also move to reduce prices in its home market. 

An upwardly sloping digital chart.

Tesla's stock rallied on Thursday on optimism that lower prices will help to fuel vehicle sales in China. Image source: Getty Images.

A new type of battery may have made the price cuts possible. Tesla's standard-range Model 3 sedans will feature less expensive lithium-iron-phosphate batteries, rather than nickel-manganese-cobalt batteries, according to Reuters.  

Now what

Investors are looking ahead to Tesla's upcoming third-quarter vehicle deliveries report, which is expected to be released in the coming days. The consensus forecast calls for Tesla to report deliveries of 140,000 vehicles, representing growth of 54% compared to the second quarter. 

Some industry watchers say strong vehicle sales in China could help Tesla top Wall Street's estimates. And price cuts might help to drive sales even higher in the quarters ahead.