Tesla has cut prices for its cars in the United States and Europe by up to a fifth as it grapples with slowing demand and increased competition.
The American automaker increased its sales by 40% during 2022 to 1.3 million, making it the world’s largest maker of pure battery electric cars, ahead of China’s BYD. However, investors have begun to worry that sales growth will be constrained by the economic slowdown in some of its key markets.
Carmakers around the world are ramping up production of electric vehicles to comply with bans on internal combustion engines that are set to come into force in the UK and Europe later in the decade. Tesla faces competition from new all-electric rivals such as Lucid, Fisker and Polestar, as well as electric cars from established brands such as Volkswagen, General Motors and Hyundai.
After a period in which new car supply outpaced demand due to supply chain disruption related to the coronavirus pandemic, automakers’ attention is turning to the possibility of a drop in demand. .
Concerns have contributed to the plunge in Tesla’s stock valuation since the height of investor enthusiasm in 2021. Tesla’s market value has fallen more than two-thirds from more than $1.2 trillion in November 2021 to less than 400,000 million dollars.
The fall in value has meant that Elon Musk, its chief executive and main shareholder, is no longer the richest person in the world and has broken the world record for the largest loss of personal fortune in history, according to a Guinness World Records report. The distraction of Musk’s acquisition of the social network Twitter is also believed to have contributed to the decline in the automaker’s value.
Shares of Tesla, which trade on the New York Nasdaq Stock Exchange, fell 6% in premarket trading on Friday.
A Tesla spokesman said the company had seen “a normalization of some cost inflation” after “a turbulent year of supply chain disruptions” that allowed it to reduce costs for customers.
The price of the cheapest Model 3 saloon, the rear-wheel drive version, was reduced by £5,500 to £42,990. The cheapest Model Y crossover dropped to £44,990, though the biggest cut was taken on the pricier Performance version, which dropped £8,000 to £59,990.
In the US, the entry-level version of its Model Y is now $52,990 (£43,526), down from $65,990, a 20% drop that will mean the vehicle qualifies for US tax credits. The Model 3 dropped to $43,990, a reduction of $3,000.
Dan Ives, an analyst at US investment bank Wedbush, said the price cuts in the US and Europe were “mind-boggling” and investors were likely to respond negatively. He added that an “electric vehicle price war” was now underway between manufacturers.
However, he said it was the “right strategic poker move for Musk”, and that the cuts could increase deliveries by 12-15%.
“Tesla now has a global scale that it didn’t have a few years ago and has the margin flexibility to make aggressive moves like this to gain greater market share in this EV arms race,” Ives said.
Ginny Buckley, chief executive of the car website Electrifying.com, said Tesla buyers who have taken delivery in recent months would be “less impressed by the move, which could ultimately undermine confidence in the company.”
“Automakers will generally carefully manage prices and incentives to prevent used values from plummeting and upsetting customers,” he said.
