The new pricing of the Tesla Model Y was incorrectly cited in a previous version of this story. It is $52,990.
Purchasing a Tesla has suddenly become a lot less expensive, with the Austin-based electric automaker slashing costs by up to 20%, most likely in an effort to encourage demand.
The price reductions apply only to vehicles sold in the United States and vary from 6% to 20% for Model 3 and Model Y SUVs, as well as select higher-end variants. Tesla made similar pricing cuts in Europe and lowered car prices in China last week.
For purchasers in the United States, the lowering means that certain Model 3 sedans and Model Y SUVs are now priced below the cap required to qualify for electric car tax credits under revisions enacted by the federal Inflation Reduction Act, which was passed into law last year. According to Tesla’s website, some customers are now qualified for the tax credit on vehicles delivered through March.
Tesla Model Y sees 20% decrease in price
Tesla did not specify how long the lower prices will be in effect. The Model Y has the highest price cut, from $65,990 to $52,990, a 20% discount, according to the Tesla website. The lowest-priced Model 3 decreased 6.4% to $43,990 from $46,990. The most costly 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 prior retail price of $65,990, Tesla’s popular five-seater Model Y, which the company deems an SUV, did not previously qualify under federal refund criteria. 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. Earlier this month, Musk took to Twitter to declare, “Messed up!”
Consumers can qualify for up to a $7,500 tax credit on new EVs and plug-in hybrids under the Act, but the vehicles must meet specific criteria: It must weigh less than 14,000 pounds, be assembled in North America, and employ 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, and cars must have a sticker price of $55,000 or less.
Why Tesla dropped prices
Wedbush Securities industry analyst Dan Ives said the price cuts were a strategic move by Musk and Tesla, as the company has seen decreased demand for its vehicles.
“It was the appropriate medicine at the appropriate time.” “They need to cut prices because demand is down,” Ives added. “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 decreases follow lower-than-expected 2022 delivery volumes. The company’s quarterly financial report will be released later this month, but it has already reported that it sold a record 1.3 million vehicles last year. However, those sales figures fell short of Musk’s objective 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 simultaneously striving to continue scaling up production at its Berlin and Austin operations. Investors have also expressed concern that Musk has been sidetracked by his $44 billion purchase of Twitter, rather than focusing on Tesla’s business.
Tesla shares fell more than 65% in 2022, outperforming the wider market. The decline also meant that Musk, whose fortune is entirely invested in Tesla stock, is no longer the world’s wealthiest individual.
“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 in an interview.
According to Ives, the price cuts would likely raise global demand and deliveries by 12% to 15% this year, demonstrating that Tesla and Musk are going on the offensive as the electric vehicle industry 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 in an interview.
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 factory began delivering Model Y automobiles and is gearing up to construct the much-anticipated Cybertruck. The firm said in December that it had reached a weekly production pace of 3,000 automobiles.
Tesla said in late 2021 that it would relocate its headquarters to Austin, where it presently functions alongside the manufacturing facilities. It is also planned to build Model 3 vehicles and batteries in the future.
According to papers with the state of Texas and the city of Austin from December and January, Tesla is also planning more than $700 million in additional building at its Austin location.