Tesla Motors Inc (NASDAQ:TSLA) announced the price of its Model S sedan in China yesterday. To everyone’s surprise, the electric vehicle maker as priced its sedan at 734,000 yuan or $121,000 in Beijing. Its about $40,000 higher than the U.S. price of the Model S at $81,070 because of unavoidable charges like import duties, taxes and transportation charges. But Tesla Motors’ price is much lower than what industry experts were expecting.  The automaker was supposed to target the wealthiest customers in China.

Tesla Motors TSLA

Tesla is doing the right thing with its Chinese consumers

The automaker said that it knows it can charge twice as much. But Elon Musk said he will do the “right thing” and treat his Chinese customers as well as the company treats its customers in Western countries. Pricing low is a big risk for Tesla Motors Inc (NASDAQ:TSLA) because consumers may perceive its cars as lower quality than high-priced competitors. This pricing strategy is a big gamble. The flagship Mercedes S500 starts in China at 2.1 million yuan or $345,000, and starting price of Mercedes S class is 1.25 million yuan or $206,000. In contrast, the S550 starts at $93,000 in the U.S.

Tesla Motors Inc (NASDAQ:TSLA) said that its competitors may try to convince Chinese consumers that the California-based company’s cars are of inferior quality due to their low price tag. But the truth is that other companies charge higher in China to double their profit per car in the country compared to the U.S. or Europe. And yes, the Model S pricing includes free access to the Supercharger network.

Automakers flocking to China

China is the world’s largest auto market. Automakers are increasingly trying to strengthen their position in the country as growth in Western countries flattens out. Due to high import duties in China, major automakers have set up their own manufacturing plants in the country. Renault SA (EPA:RNO) announced last month that it will open its first factory in China. Electric vehicle makers haven’t expressed any interest in producing cars in the world’s most populous country because Chinese government requires them to hand over their technology to local partners.

Tesla Motors Inc (NASDAQ:TSLA) shares plunged 0.53% to $177.61 in pre-market trading Thursday.