The fact that Tesla is able to reduce China prices so much suggests that the Shanghai upgrades dramatically reduced costs and Q4 could be a huge beat.
I don't think that's the correct way to look at this. I'm not saying Q4 won't be a huge beat, I'm saying the price cuts are not evidence of that.
That's because Tesla will not cut prices simply because they have reduced costs - that would lead to unacceptable order wait times. Price cuts/rises are the most reliable visibility we have into the level of demand (as opposed to indicating how much room they have to lower prices).
In the same vein, and contrary to what Elon implied about a year ago, they will not raise prices simply because the cost to produce has risen. Elon was just using the rise of raw material prices as his excuse for the price rises and to prevent analysts from using the price hikes to project unrealistic margins. The price hikes were actually in direct response to unexpected increases in demand, in order to keep demand to manageable levels.
The best (soonest) reliable visibility we have into how much pricing power (margins) Tesla has are the quarterly reports, not price cuts which, again, are in response to changes in demand.
In summary, Tesla is not a charity, and they don't cut prices simply to give their customers a better deal simply because they can, just like they don't raise prices to price gouge, they do both of these things to align demand with the ever-increasing factory outputs and factors that cause demand variations. Said another way, it's actually quite important to keep the cars flowing to customers at the same rate they are produced, without long wait times and without excessive inventory.
This is classic economic theory of supply and demand so it should be no surprise. The only time this wouldn't apply is if Tesla could not afford to cut prices further, then they would be forced to cut production instead. That is the untenable position most of Tesla's so-called competitors will find themselves in if this recession causes lower overall sales of autos. Tesla's ability to increase production during such times will be making it much worse for them. First Tesla stabbed them with a knife and now they will be twisting it back and forth. It's not malicious, it's just the way capitalism works when it's functioning properly and there is a new producer of high-quality goods that cost less to produce. This is exactly how capitalism benefits consumers, by getting rid of inefficient producers or forcing them to become more efficient.
It's better to do one big price cut than a bunch of little ones that keep consumers waiting for more price cuts. They should do a tiny price increase in about a month to make sure everyone knows the cuts are over.
The quickest way to judge whether prices will be going higher or lower is to see watch the balance between wait times and inventories. I don't think Tesla would be very likely to use changes in pricing to signal this per se, although that is exactly what a small price increase would signal. Increasing wait times would be a timelier signal that further price drops should not be anticipated while an actual raise in pricing would be stronger confirmation that Tesla's projections confirmed that they expected demand to remain strong.