Tesla is slashing vehicle prices to boost slacking demand
As sales slowed and the stock price fell, Tesla dramatically cut prices on several versions of its electric vehicles on Friday, making some of its models eligible for a new federal tax credit that could help attract buyer interest.
The company slashed prices in the United States by almost 20% on some versions of its best-selling Model Y SUV. This cut will result in more versions of the Model Y being eligible for a $7,500 electric vehicle tax credit, which will be available through March. Tesla also cut the base price of the Model 3, its most affordable model, by about 6%.
Far from pleasing investors, the sharp price cuts sent Tesla shares down almost 3% as of Friday lunchtime. Since the beginning of last year, the stock has plummeted more than 65%. Many investors fear Tesla’s sales decline will continue, and are increasingly concerned about CEO Elon Musk’s erratic behavior and the distractions caused by his $44 billion purchase of Twitter.
“I think the real reason for all of this is the declining demand for Teslas,” said Sam Abuelsamid, e-mobility analyst at Guidehouse Research.
Itay Michaeli, an industry analyst at Citi, wrote in a note to investors that Tesla appears to prioritize sales volume over price — a strategy that could eat into its profit margins, at least in the short term.
Messages were left on Friday for comment from Tesla.
Meanwhile, Tesla faces the risk of intensifying competition from other automakers in the United States and around the world in the coming years. Last year, total EV sales in the United States increased nearly 65% from 2021. The automakers sold 47 electric vehicle models; only four were Teslas. S&P Global Mobility expects the number of electric vehicles to increase to 159 by 2025.
And as overall electric vehicle sales rise, Tesla’s U.S. market share is falling. From 2018 to 2020, Tesla represented about 80% of the EV market. By 2021, that number had dropped to 71%, and it’s still falling, according to registry data collected by S&P.
Still, Tesla’s U.S. sales rose 40% last year, and S&P expects them to keep rising as overall electric-vehicle sales rise steadily.
Even with U.S. tax credits, electric vehicles remain expensive compared to gas-powered vehicles, largely because of high battery costs. Additionally, higher lending rates and more expensive raw materials are keeping costs high for buyers and could limit EV sales for both Tesla and its competitors.
With Tesla’s price cuts on Friday, the Model Y performance model, which used to cost nearly $70,000, now starts at just under $57,000. The starting price of the Model 3, Tesla’s most affordable vehicle, has been reduced from $47,000 to just under $44,000.
The company’s decision to lower the base price of the Model 3, which was already eligible for the federal tax credit, is a clear sign that demand has slowed, Abuelsamid noted.
Tesla has added two massive factories in Austin, Texas, and Berlin that are running at a fraction of their production capacity, “which is undoubtedly costing them dearly,” Abuelsamid said.