Tesla is cutting prices on all its models in an effort to boost sales
Tesla has slashed prices of its most popular models by up to 20% in the US and Europe in a bid to boost sales as competition heats up – a move that ensures more of its models can qualify for a federal electric vehicle tax credit.
The price cut will make the Model Y, the best-selling electric vehicle in the US, eligible for a $7,500 tax credit, making it more competitive as demand for electric cars continues to grow.
Tesla shares fell on the news, but Wedbush analyst Daniel Ives says Tesla is playing the long game.
“This is a clear shot at European automakers and American stalwarts (GM and Ford) that Tesla will not play nice on the lockout now that the EV price war is underway,” Ives wrote in a note. “Margins will take a hit in this case, but we like this strategic poker move by Musk and Tesla.”
Musk hinted last fall that a price cut could come sometime in 2023.
Cheaper than the average gas vehicle
Among the price cuts, the long-range Model Y (the cheapest version available) will now have a base price of $52,990, down $13,000.
That drops the price below the $55,000 price cap needed to qualify for enhanced federal EV tax credits, giving an effective price to eligible buyers of $45,490. That’s well below the average price for a new vehicle in the US.
Previously, only the 3-row Model Y qualified for the credit because it qualified for the higher price cap.
Other models were also cut. The base price of the Model 3 has been reduced by $3,000 to $43,990, or $36,490 after the federal tax credit.
However, there is a caveat with these federal tax credits. Eligibility rules are due to change in March, and there’s no guarantee the vehicles will still qualify – and no guarantee a custom vehicle will arrive before the rules change.
Customers looking to get a tax credit (on a Tesla or any EV) may want to focus on vehicles available for purchase today rather than waiting to order.
The price cuts come as major automakers release more electric vehicles, particularly at the cheaper end of the market, reducing Tesla’s overwhelming dominance.
That’s a major factor driving Tesla’s aggressive pricing, along with supply issues finally easing and new government incentives starting to emerge.
More generally, vehicle availability is currently a major concern of the automotive industry.
The companies are making an extraordinary amount of money because the shortage of vehicles has driven up prices — but they also know they’re driving away potential buyers who simply can’t pay $50,000 for a car (the average transaction price for a new vehicle these days is $49,507, according to the latest figures from Kelly Blue Book).
As supply chain woes begin to ease, the number of vehicles available for sale begins to rise. Analysts are watching which automakers respond by cutting prices and chasing market share.
And Tesla can move much faster than its big rivals. Most automakers set the MSRP for their vehicle based on the model year, and consumers then negotiate the actual price with the dealer.
Tesla, on the other hand, sets prices directly on its website without the haggling and changes them whenever it likes.
