Tesla Slashes New Car Prices In Effort To Boost Sales

Recently, we wrote about how the Tesla sales model gives it the flexibility to adjust prices of its vehicles to adapt to changing demands in the marketplace more easily than traditional automakers, who tend to set sticker prices once a year and stay with them until the next year’s models are introduced. Over the past 24 hours, Tesla has taken advantage of that flexibility in big way.

Tesla also reduced prices in the US for its Model S and Model X cars. Price cuts in Europe are similar. According to Reuters, in Germany the Model Y is now priced at 44,890 euros ($48,499), 9,100 euros less than the price yesterday. The price of the Model 3 rear wheel drive was cut 17% and the Model 3 LR by 9%. The company also reduced prices in Austria, France, Germany, the Netherlands, Norway, Switzerland, and the UK, according to CNBC. The new prices mean the Model 3, at 44,990 euros, will now be eligible for the French EV government subsidy of 5,000 euros ($5,415).

Playing EV Tax Credit Roulette

Tesla Model Y

Previously in the US, the Tesla Model Y was ineligible for the federal EV tax credit because the IRS classified it as a sedan or wagon. Those cars have a maximum sales price of $55,000 in order to qualify for the tax credit. But now the Model Y is well under that limit, so not only will buyers get a much lower price, they will also qualify for as much of the $7,500 federal tax credit as they are eligible for after they navigate the minefield of personal income levels and other requirements created by the Inflation Reduction Act.

That situation will prevail until the IRS completes the battery materials and components sourcing rules and regulations later this year. The agency says it should be up to speed on that by March, but who knows? Once those rules are promulgated, the federal tax credit will be split into two halves.

If the battery materials are sourced from an approved location, the buyer could be eligible for a $3,750 tax credit. If the battery components are sourced from an approved location, the buyer could be eligible for an additional $3,750 tax credit. And all of it is contingent on final assembly of the vehicle taking place in North America.

After the sourcing rules are clarified, Tesla buyers may be eligible for all, half, or none of the tax credit depending on where Tesla gets its battery materials and components from. We certainly don’t know the answers to those questions and it is unlikely very many other people do either. The word to the wise for US customers is to get your Tesla Model Y now while you can be sure of qualifying for the maximum credit allowable, because come March, who knows?

Not surprisingly, those who took advantage of Tesla’s offer of a $3,750 discount and 10,000 miles of free charging in December are kicking themselves for not waiting until now to buy their cars. But who would have predicted a 20% price cut was coming back then? My wife and I bought our Model Y in 2021 and the price increased $6,000 shortly thereafter, which made us feel pretty smug. Now if we had limped along with our LEAF for another 14 months, we could have saved around $10,000. Predicting the future sure can be tricky.

Volume vs. Profits

One of the basic rules of the marketplace is you can’t pay 10 cents apiece for apples, sell them for a buck a dozen, and expect to make money. Tesla has enjoyed the highest profit margins of any automaker for the past few years, but demand seems to have fallen off, particularly in China, where sales plunged at the end of 2022. Tesla first announced major price cuts in China last week, and then sold 30,000 cars in three days, according to Chinese news sources.

Will the price cuts in the US and Europe lead to a similar surge in sales? Probably. Consumers love a bargain, and the Tesla price cuts are substantial enough to motivate people to get off the couch and take action. Wedbush analyst Dan Ives said in a research note the move could boost global deliveries by 12 to 15% this year. It shows that Tesla is on the offensive and is willing to prioritize volume over profit margins.

“This is a clear shot across the bow at European automakers and US stalwarts (GM and Ford) that Tesla is not going to play nice in the sandbox with an EV price war now underway. Margins will get hit on this, but we like this strategic poker move by Musk and Tesla,” Ives wrote, according to Reuters. Investors have certainly taken notice. In Europe, Stellantis, Volkswagen, and Renault shares were all down in early trading on Friday. In the US, General Motors shares were off 5%, Ford shares fell 5.4%, and Tesla shares were off by about 2.3% at 3:00 pm ET.

Tesla Is Now Fending Off Its Rivals

Tesla is facing more competition, higher interest rates, and slower consumer spending than in recent years, Bernstein analysts wrote in a note on January 12, according to CNBC.  “We believe that many investors underestimate the magnitude of the demand challenges Tesla is facing.” The firm has an “underperform” rating for Tesla shares and has set a price target of $150 a share. On the other hand, other analysts have awarded the stock a Buy rating.

In an email to CleanTechnica, Scott Case, CEO of Recurrent Auto, said “After a backlog of inventory at the end of 2022, it became clear to Tesla that increasing competition from other carmakers is dividing the captive audience Tesla once relied on. At the same time, tougher financing options make customers more wary of spending on a luxury car.

“We are now seeing the true advantage that Tesla has over every other EV automaker — their cost advantages. Let’s remember that they are still making money at these prices. No other EV maker could drop prices by this much and not lose money on every unit sold. In particular, this move will ensure that the Model Y retains its best selling status, since it can now qualify for the federal tax credit as a car.”

A few years ago, Elon Musk was begging people to build compelling electric cars. Now they are. In fact, BYD is actually outselling Tesla globally with its plugin cars, which are often priced considerably below what Tesla vehicles cost.

Is the honeymoon over for Tesla? Our crystal ball is no better than yours, but with production set to ramp up in Germany and  Austin this year, Tesla seems to be well positioned to deliver 2 million or more electric cars this year. My colleague Paul Fosse is even more optimistic. He believes Tesla could be selling more cars than any other US auto manufacturer by the end of 2024.

Since the company’s profit margin on new cars before the price cuts was nearly triple that of other EV manufacturers, it seems likely that selling more cars at lower margins will still result in Tesla remaining highly profitable. Elon told his employees not to worry about the price of the shares they receive as part of their compensation package, they would be fine in the long run. That should be music to the ears of all the other investors who have placed their trust and confidence in Tesla.




Appreciate CleanTechnica’s originality and cleantech news coverage? Consider becoming a CleanTechnica Member, Supporter, Technician, or Ambassador — or a patron on Patreon.


Don’t want to miss a cleantech story? Sign up for daily news updates from CleanTechnica on email. Or follow us on Google News!


Have a tip for CleanTechnica, want to advertise, or want to suggest a guest for our CleanTech Talk podcast? Contact us here.



Like this post? Please share to your friends:
Leave a Reply

;-) :| :x :twisted: :smile: :shock: :sad: :roll: :razz: :oops: :o :mrgreen: :lol: :idea: :grin: :evil: :cry: :cool: :arrow: :???: :?: :!: