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Tesla drops car prices dramatically as company seeks to grow market share

By Sarah May
|
January 14, 2023

Based on price information on its company website, electric vehicle manufacturer Tesla has slashed prices on models sold in the United States and countries across Europe, building on prior reductions on cars sold in China, as CNBC reports.

Though the car maker did not provide a specific explanation for the price reductions, industry experts have pointed to easing demand together with stringent price caps on new tax credits as possible reasons for the move, along with the company's desire to recoup lost market share.

Tesla prices slashed

According to The Hill, the price cuts for some Tesla models approached 20%, with the cost of a low-end Model 3 dropping $3,000 and a top-tier Model Y dropping nearly $13,000.

The pandemic witnessed dramatic cost increases for EVs in general and Teslas in particular due to supply chain problems, but current market conditions are rendering those price points unsustainable, as the outlet noted.

Demand has begun to wane, and electric vehicles have moved out of the financial reach of growing number of consumers, with average prices approaching $66,000 in 2022.

Industry analysts suggest that the action by Tesla is designed to spur demand and encroach on market share gains seen by other entrants into the EV arena.

Dan Ives of Wedbush opined, as The Hill noted, “This is a clear shot across the bow at European automakers and U.S. stalwarts that Tesla is not going to play nice in the sandbox with an EV price war now underway.”

Strategic timeline

The Hill further explained that the price cuts at Tesla are strategically timed to take new federal EV tax credits into consideration.

Because of the tax credit price threshold of $55,000 applicable to electric vehicles through March, the lower prices on Tesla Model Y and Model 3 Performance cars will give prospective buyers opportunities to take full advantage of the federal incentives.

If they buy the aforementioned Teslas before that time, they can obtain a tax credit of $7,500 and get in under the wire before the government imposes changes pertaining to component source rules that will effectively slash the credit by 50% for the automaker's products.

The Hill added that while Tesla CEO Elon Musk has not commented on this latest round of price hikes, he did note over the summer that he believed prices for electric vehicles were “embarrassingly high” and could cause many consumers to remain on the sidelines.

“You can't kind of just raise prices to some arbitrarily high level because you pass the affordability boundary and then demand falls off a cliff,” Musk declared.

Backlash begins

While, as CNBC noted, it is certainly true that the price drops have a definite upside for those who have been contemplating a Tesla purchase in the immediate future, there is also a real risk that the move will lead to disenchantment among those who already committed to buying at the higher prices that prevailed at the end of 2022.

Indeed, as Fortune reports, the backlash from Tesla owners has already started to emerge, with Marianne Simmons, 32, who owns two of the company's vehicles, lamenting that she bought her Model Y in September before its price was substantially reduced.

“I feel like I got duped. I feel like I got taken advantage of as a consumer. Right off the bat, I'm out $13,306. It's such a large reduction that it's going to affect a lot of people who just bought a vehicle,” Simmons said.

Ivan Drury of Edmunds.com echoed Simmons' sentiments, saying, “For any existing owner, it's a kick to the teeth. Anyone who bought a Tesla recently will feel an immediate impact and wish they leased it.”

One frustrated customer, who took delivery of his Tesla in December, said he hoped the automaker might offer people in his situation some sort of compensatory gesture, such as free charging, but whether that is on the cards remains unclear.

For Simmons, however, the damage is done, and the self-proclaimed “Tesla fan girl” said, “I would not buy a Tesla again...I'd go with a competitor like Lucid or Rivian.”