Can Tesla continue to be the modern electric vehicle market leader that it effectively created?
That question has been on the minds of buyers, investors, analysts, industry watchers and Elon Musk fans for months. That has been especially the case, as questions about demand in China and the US, not to mention the Twitter drama, seemed to cast a shadow over the electric carmaker’s success story.
On Thursday night, Tesla revealed its answer to this problem, at least for now: steep price cuts on its lineup of cars, which in some cases equate to up to 30 percent off when the latest tax credits are also applied. ev.
Can Tesla continue to be the modern electric vehicle market leader that it effectively created?
Also, some of the price cuts now qualify cars for those tax breaks in the first place.
Analysts who spoke with the edge on Friday he stressed the importance of these cuts, saying they can have profound effects not only on the Tesla brand, but also on the increasingly competitive EV game. Some even said this could be the first opportunity in a looming EV “price war,” even as automakers struggle to source enough materials to put these cars on the road en masse.
“Tesla’s latest price cuts reflect a major shift in the electric vehicle market,” said Jessica Caldwell, chief information officer for car-buying website Edmunds. “In 2023, a wave of new EV options will enter the market, but with production limited for most manufacturers, Tesla is positioning itself to appeal to consumers who are unwilling to wait or who may be undecided about EV technology by luring them in with one thing all buyers respond to: a deal.”
Prospective Tesla customers will probably be very happy about the news on Thursday. The Model 3 Performance, for example, dropped from nearly $63,000 to $54,000 before any tax credits. Model Y yield is down from nearly $70,000 to around $57,000, also before tax credits.
Tesla’s latest price cuts reflect a major shift in the electric vehicle market.
“The changes to note are especially for the Model Y, with some configurations seeing their MSRPs drop as much as $13,000, a truly staggering discount that is rare in this industry,” said Robby DeGraff, auto industry analyst. . research firm AutoPacific. “In addition, these more affordable prices mean that certain configurations of the Model 3 and Model Y, typically two of the best-selling electric vehicles in the country, should now be eligible for further discounts of up to $7,500 thanks to federal vehicle tax credits. revised electrical. ”
Tesla’s price cuts put the automaker’s offerings well below several competitors. The standard range of the Model 3, in particular, is now much closer to the long promised $35,000 model 3 but never materialized than ever before.
The price cuts come on the heels of a similar move in China last week. There, Tesla slashed prices for it by as much as 13 percent, the third such move in recent months as it battles for EV supremacy with local automakers such as BYD.
In the US, the move was also timed to coincide with changes to the EV tax credit under the Cut Inflation Act. That legislation encourages tax breaks for electric vehicles assembled in North America, as well as batteries assembled here.
Caldwell said the cuts, which are intended to protect Tesla’s market share, also represent its transition from a “market anomaly” to a mainstream auto company. He The median price of a new EV was around $65,000 at the end of 2022even higher than the also astronomical new prices of internal combustion cars of late.
Tesla’s price cuts put the automaker’s offerings well below several competitors.
It’s a way to stay ahead of the competition. Caldwell said that for a long time in the US, Tesla was effectively the only EV maker not making “compliance vehicles” — expensive, low-range converted EVs built to meet local regulations. “But now, Tesla must be competitive in multiple areas, including price, design and performance,” he said.
That will prove increasingly difficult in 2023. This year, all the major automakers and several startups are collectively planning a new onslaught of electric vehicles, nearly all of which boast an impressive range of vehicles, advanced features, and a level of Unprecedented software integration.
While Tesla’s line of cars is more than competitive in those areas, it’s getting stale; this year’s Model S is now 10 years old, while the best-selling Model 3 is six years old. And Tesla appears to have few known new products in the immediate pipeline, aside from the long-overdue Cybertruck and Roadster.
At the same time, as another Edmunds analyst said the edge in December, discounts are often a hallmark of cheaper, less premium brands; Nissan, in particular, has struggled with the effects of this strategy for years..
“Tesla must be competitive in multiple areas, including price, design and performance”
“Like the major automakers, Tesla will have to grapple with what these price cuts will mean for its residual values and brand image,” Caldwell said.
In addition, many existing Tesla customers, including those who paid more for the same vehicles they bought in December, appear to be unhappy with the move, fearing the impact on the resale values of their cars. Many took to social media on Friday, including Twitter, the platform Musk personally owns, to complain or request discounts on other services.
“However, it appears that some drama is unfolding among buyers who just bought exactly these Tesla vehicles, at higher costs, before these dramatic price drops were announced, things could get ugly and Musk might need to find a way to put out those fires,” DeGraff said.
Meanwhile, Tesla owners in China have been taking to the streets in protest of the price cuts this past weekend and into this week, saying the decision has negatively affected their resale values. While customers in the US and Europe are unlikely to go that far, one group of people were quite pleased with this decision: Tesla’s long-term investors.
“While the initial reaction to these cuts will naturally be negative in [Wall] Street at the beginning, we think this was the right strategic poker move by Musk and the company at the right time,” said Dan Ives, a technology analyst at Wedbush Securities who is bullish on Tesla but has been highly critical of the stock. of Musk in recent years. months.
“We believe that, taken together, these price cuts could stimulate demand/deliveries by 12-15% globally in 2023 and shows that Tesla and Musk are going on the ‘offensive’ to stimulate demand in a context of weakening,” said Ives. “This is a clear opportunity for European automakers and US stalwarts (GM and Ford) that Tesla is not going to play nice in the sandbox with an EV price war now underway.”
As with most deals in life, there seems to be at least one catch. While the new rules on EV tax credits are hazy, evolving, and sometimes deeply confused, many observers have pointed out that the full benefit of these discounts (the price cuts and tax credits combined) depends on receiving a Tesla before March 31. That’s when the rules on battery supply will change.
Unless something changes with the tax credits, and it most likely does, these deals are contingent on Tesla’s ability to deliver cars to meet demand that has arisen in the last 24 hours.
