Purchasing a Tesla has just become a lot less expensive, with the Austin-based electric automaker slashing prices by up to 20%, most likely in an effort to increase demand.
The price reductions apply only to vehicles sold in the United States and range from 6% to 20% for Model 3 and Model Y SUVs, as well as some higher-end models. Tesla made similar price cuts in Europe and dropped car prices in China last week.
For buyers in the United States, the drop means that certain Model 3 sedans and Model Y SUVs are now priced below the cap required to qualify for electric vehicle tax credits under changes enacted by the federal Inflation Reduction Act, which was signed into law last year. According to Tesla’s website, some customers are now eligible for the tax credit on vehicles delivered through March.
Tesla Model Y costs 20% less now.
Tesla did not specify how long the lower prices would be in effect. The Model Y has the largest price drop, from $65,990 to $52,990, a 20% decrease, according to the Tesla website. The lowest-priced Model 3 dropped 6.4% to $43,990 from $46,990. The most expensive vehicles on the market were reduced by up to $21,000, including the company’s Model S Plaid, which was reduced by 15%.
With a previous list price of $65,990, Tesla’s popular five-seater Model Y, which the company considers an SUV, did not previously qualify under federal rebate guidelines. The vehicle did not meet the weight requirement to be classified as an SUV by the government, and it cost too much to qualify as a smaller vehicle as of last week. Musk already took to Twitter to say it was “Messed up!” earlier this month.
Consumers can qualify for up to a $7,500 tax credit on new EVs and plug-in hybrids under the legislation, but the vehicles must meet certain criteria: It must weigh less than 14,000 pounds, be assembled in North America, and use a battery with a capacity of at least 7 kilowatt hours. Vans, SUVs, and pickup trucks must have a suggested retail price of less than $80,000, whereas sedans must have a sticker price of $55,000 or less.
Why did Tesla lower its prices?
Wedbush Securities industry analyst Dan Ives said the price cuts were a strategic move by Musk and Tesla, as the company has seen less demand for its products.
“It was the perfect medicine at the perfect time. Prices must be reduced as demand falls “Ives stated. “They’re no longer the only game in town, the macro is softer, and they needed to cut prices to qualify Model Y for the tax credit.”
The price cuts follow lower-than-expected 2022 delivery numbers. The company’s quarterly earnings report will be released later this month, but it has already announced that it sold a record 1.3 million vehicles last year. However, those sales figures fell short of Musk’s goal of increasing sales by 50% each year.
Last year, Tesla dealt with COVID-19 shutdowns in China, which reduced production at its Shanghai plant, while also working to continue scaling up production at its Berlin and Austin facilities. Investors have also expressed concern that Musk has been distracted by his $44 billion purchase of Twitter, rather than focusing on Tesla’s operations.
Tesla shares fell more than 65% in 2022, outperforming the broader market. The drop also meant that Musk, whose fortune is largely invested in Tesla stock, is no longer the world’s wealthiest person.
“After a Cinderella ride for the last four or five years, Tesla is bracing for some economic cracks and they must adjust,” Ives said.
According to Ives, the price cuts will likely increase global demand and deliveries by 12% to 15% this year, demonstrating that Tesla and Musk are going on the offensive as the electric vehicle market heats up.
“Austin can ramp up Model Y production, which adds to the global scale and gives them more margin flexibility,” Ives said.
Tesla is ramping up production at its $1.1 billion Giga Texas manufacturing facility in Central Texas, which opened in April. In April, the Austin facility began delivering Model Y vehicles and is gearing up to produce the much-anticipated Cybertruck. The company announced in December that it had reached a weekly production rate of 3,000 cars.
Tesla announced in late 2021 that it would relocate its headquarters to Austin, where it now operates alongside the manufacturing facility. It is also expected to produce Model 3 vehicles and batteries in the future.
According to filings with the state of Texas and the city of Austin from December and January, Tesla is also planning more than $700 million in new construction at its Austin site.