Buying a Tesla just got a lot cheaper, after the Austin-based electric automaker slashed prices by as much as 20% likely in an effort to increase demand.
The price cuts apply to vehicles sold in the United States and range from 6% to 20% reductions for Model 3 and Model Y SUVs and some higher-end models. Tesla made similar reductions in Europe and dropped prices on its cars in China last week.
For U.S. buyers, the drop means that certain Model 3 sedans and Model Y SUVs are now below the cap needed to qualify for electric vehicle tax credits under changes set in motion by the federal Inflation Reduction Act, which was signed into law last year. Tesla also said on its website that some customers are now eligible for the tax credit on cars delivered through March.
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Tesla Model Y sees 20% decrease in price
Tesla did not saw how long the lower prices would remain in place. The Tesla website shows the Model Y with the largest drop in sticker price, from $65,990 to $53,990, a 20% decrease. The lowest-priced Model 3 dropped to $43,990 from $46,990, a 6.4% drop. The most expensive vehicles on the market dropped as much as $21,000, including the company’s Model S Plaid, which had a 15% price drop.
Tesla’s popular five-seater Model Y, which the company considers an SUV, previously did not qualify under federal rebate guidelines with a previous list price of $65,990. The vehicle did not reach the weight minimum to be considered an SUV by the government standards, and as of last week cost too much to qualify as a smaller vehicle. Musk already took to Twitter to say it was “Messed up!” earlier this month. The price has now dropped to $52,990.
Under the legislation, consumers can qualify for as much as a $7,500 tax credit on new EVs and plug-in hybrids, but the vehicles have to meet certain criteria: It must weigh less than 14,000 pounds, must be assembled in North America, and must use a battery with at least 7-kilowatt hours of capacity. Vans, SUVs or pickups, which are defined by weight, must have a suggested retail price below $80,000, while smaller vehicles like sedans must have a sticker price of $55,000 or less.
Why Tesla dropped prices
Dan Ives, an industry analyst with Wedbush Securities, said the price cuts were a strategic move by Musk and Tesla, as the company has been seeing less demand for its products.
“It was the right medicine at the right time. They need to cut prices amid softer demand,” Ives said. “They’re no longer the only game in town, it’s a softer macro, and also they needed to cut prices to qualify Model Y for the tax credit.”
The price cuts follow lower-than-expected delivery numbers for 2022. The company will issue its quarterly earnings report later this month, but has already announced that it sold a record 1.3 million vehicles last year. But those sales numbers fell short of Musk’s goal to grow sales by 50% every year.
Tesla grappled with COVID-19 shutdowns in China last year that cut into production at its Shanghai factory, while also working to continue scaling up production at its Berlin and Austin facilities. Investors have also been worried that Musk has been distracted by his $44 billion purchase of social media platform Twitter, rather than focusing on Tesla’s operations.
Tesla shares were down more than 65% in 2022, outpacing broader market declines. The drop also meant Musk, whose wealth is largely tied up in Tesla stock, is no longer the world’s richest person.
“After a Cinderella ride for the last four or five years, Tesla is bracing for some cracks in the economy and they have to have to adjust,” Ives said.
Ives said the price cuts will likely increase demand and deliveries by 12% to 15% globally this year, and show Tesla and Musk are going on the offensive as the electric vehicle market heats up.
“Austin can ramp production of Model Y and it adds to the global scale, which gives them more flexibility when it comes to margins,” Ives said.
Tesla is increasing production at its $1.1 billion manufacturing facility in Central Texas, called Giga Texas, which opened in April. The Austin facility started delivering Model Y vehicles in April and is preparing to produce the much-anticipated Cybertruck. In December, the company said it reached 3,000 cars per week production rate.
Tesla announced in late 2021 it would move its headquarters to Austin, and now operates out of the same site as the manufacturing facility. It also is expected to eventually produce Model 3 vehicles and batteries.
Tesla is also planning more than $700 million in new construction at its Austin site, according to filings from December and January with the state of Texas and the city of Austin.