The California-based firm stated on Thursday that it will reduced prices of its two flagship models by 12 to 16 percent to help make the vehicles more affordable for customers in the world's top auto market, where the demand of the so-called new-energy vehicles are growing at an incredible speed.
Tensions worsened between the U.S. and China last weekend, after USA vice president Mike Pence vowed the country would not back down from its trade dispute with China. Another no less popular model Model X P100D will fall in price by 25%, its new value will be of 1.18 million yuan.
"We are absorbing a significant part of the tariff to help make our cars more affordable for customers in China", a Tesla spokesperson said in a statement.
This announcement comes at a time of strong trade tensions between China and U.S, as additional tariffs are imposed on U.S imports to China, including vehicles.
Tesla's prices in China have fluctuated wildly this year.
Tesla also said a dual-motor all-wheel drive version of its Model 3 will be priced at 540,000 yuan in China, and the performance version will cost 595,000 yuan.
China, where new energy vehicle sales surged 75.6 percent in the first 10 months of this year to 860,000 units, is one of Tesla's most important markets. China is now the largest market for an electric vehicle so it made sense that Tesla would want to tell their vehicles there. The US has placed tariffs on $250bn (£194bn) of Chinese goods to date, which Pence "could more than double" if Beijing does not acquiesce to its demands.
Tesla warned last month it was facing major problems with selling cars in China due to new tariffs that would force it to accelerate investment in its first overseas Gigafactory in Shanghai.