Tesla Inc. TSLA -0.25% decrease; red down pointing triangle slashed prices once more for its cars in the United States in an effort to boost demand in the face of fiercer competition from other automakers.
Tesla reduced the base model prices of its Model S and Model X by $5,000 each, to $84,990 and $94,990, respectively. Additionally, the company reduced the cost of some Model Y crossovers and the Model 3 sedan.
Tesla shipped a record 422,875 vehicles to customers worldwide in the first quarter, up 36% from the same period last year. 10,695 of those deliveries were made up of Model S and Model X vehicles, despite the fact that the company claimed to have produced more than 19,000 of each model during the time frame.
Rival automakers have also lowered their prices, like Ford Motor Company, which did so in January with the Mustang Mach-E EV. Ford predicted that its EV business would lose about $3 billion this year.
Despite the high demand for newer models, automakers are sometimes maintaining or even increasing EV prices. The starting price of Ford’s F-150 Lightning pickup truck was increased last month; this is at least the fourth price increase since the vehicle first went on sale almost a year ago.
Tesla previously reduced the cost of both its Model X SUV and its luxury sedan, the Model S, last month. The business also reduced prices in January for all of its vehicles, including its two best-selling models.
Tesla made some earlier cuts back after the January cuts. Elon Musk, the CEO, claimed that the price changes increased consumer interest. According to Mr. Musk earlier this year, Tesla discovered that “even small changes in the price have a big effect on demand, very big.”
An inquiry for comment from Tesla received no response. The company listed a new, more affordable model of its Model Y crossover for preorder and cut the price of its Model 3 sedan by $1,000, bringing it down to $41,990. The base price of that car is $49,990. The prices of Tesla’s other Model Y configurations were decreased by $2,000, bringing them back to mid-January levels.
The most recent round of cuts also coincides with Tesla getting ready for the reduction of its Model 3 Rear-Wheel Drive’s $7,500 tax credit, which was given to buyers of its more affordable models during the first quarter, to $3,750 on April 18. The decrease is related to new requirements for EV tax credits that the Treasury Department recently issued.
On April 19, when Tesla is scheduled to release first-quarter results, investors will get a second look at its financials.
Despite an anticipated increase in sales, FactSet estimates that Wall Street expects the first-quarter profit to decline to about $2.6 billion from $3.3 billion for the first three months of 2022. According to FactSet data, quarterly revenue is anticipated to increase to more than $23.8 billion from $18.8 billion in the prior quarter.
More EVs are being produced by automakers, and new models are being released, giving consumers more options. According to J.D. Power, EV sales in the U.S. increased to 8.5% of all auto industry sales in the first quarter from 5.3% in the full year 2022.
In a statement made last month, Volkswagen AG’s chief financial officer Arno Antlitz said, “We are very aware that competition will become tougher.” Therefore, we make every effort to maintain a fixed overhead cost level. He reaffirmed that the business intends to sell an EV for less than €25,000, or about $27,000.
Tesla sells cars directly to customers instead of through a dealership, and it regularly updates prices online. Although those prices are fixed, they may change depending on local taxes and incentives in different markets.
Prices for vehicles made by conventional automakers are typically less transparent. These businesses typically offer dealers suggested prices, but actual customer prices frequently vary due to private negotiations or dealer incentives.
Tesla has more pricing flexibility than most automakers because of its comparatively high operating margins—16.8% last year—and substantial cash reserve. According to industry standards, the company hasn’t released a new passenger vehicle in three years, and its least expensive model starts above $40,000 in the United States.
Some Wall Street investors are concerned that Tesla won’t be able to continue growing without further price cuts as a result of the lack of new products. Later this year, the company hopes to launch the Cybertruck pickup, bringing its lineup of passenger models to five.
In previous remarks, Mr. Musk has attempted to allay Wall Street’s worries that price reductions are a sign of declining demand. He stated in January that “we are currently seeing orders at almost twice the rate of production.”
According to analysts, a recent drop in commodity prices may allow Tesla to lower its prices further. For instance, lithium prices, a vital component of EVs, have decreased by about 20% since reaching record highs in January, according to a recent research note from Baird Equity Research.
According to Tesla, it plans to deliver about 1.8 million cars this year, which would be about 37% more than it did in 2022.
Deliveries have been expected to rise by an average of 50% annually, according to the company. To that end, it has plans to build a new manufacturing facility close to Monterrey, a major industrial center in northern Mexico. Tesla already makes cars in Germany, China, and the United States.