Tesla extends price reductions to the U.S. and Europe in an effort to boost demand
(Reuters) – Tesla has slashed the prices of its electric cars in the United States, Europe and Asia by as much as 20 percent. This follows a Wall Street estimate for 2022 deliveries that was not met.
After CEO Elon Musk warned about the possibility of recession and higher interest rates, Tesla shares fell 4.5% in pre-market U.S. trading. This was after the company’s profit margins were being squeezed.
The Tesla price reductions in major markets represent a shift from the strategy that the automaker used through most of 2021-2022 when new vehicle orders exceeded supply. Musk admitted last year that Tesla’s prices were “embarrassingly” high and could affect demand.
A spokesperson for Tesla Germany confirmed that prices have fallen in the top European market because of stable inflation.
Reuters calculations revealed that the U.S. announced price cuts on Thursday for its top-sellers, the Model 3 sedan, and Model Y crossover SUV. They were between 6% to 20%.
Its Model Y basic edition now costs $52,990, a drop from $65,990 in the past.
This is before the federal tax credit of up to $7,500 that was available for electric vehicles models starting in January.
Below is a table showing the price reductions by model in Germany as well as the United States.
Tesla also reduced the prices of its Model X luxury crossover SUV, and Model S sedan in America.
It reduced the prices of the Model 3 and Model Y in Germany by about 1% to almost 17%, depending on their configuration. It also reduced prices in France, Switzerland, and Austria.
The new Tesla price and the U.S. subsidy amount to a 31% discount for a U.S.-buyer of the Model Y long-range vehicle. The Tesla move also made more vehicles eligible for the Biden administration credit.
Musk said that the Model Y’s five-seater version was ineligible before the price drop. The long-range Model Y version will now be eligible after the price reduction.
These cuts could make EV cars more affordable for people who were previously priced out.
Customers in France will be able to purchase the Model 3 at 44,990 euros ($48773) and receive a subsidy of 5,000 euros from the government. The minimum threshold for the EV program is 47,000.
VOLUME VS. MARGINS
“This should really increase 2023 (Tesla), volumes,” Gary Black, a Tesla investor, stated in a tweet. He has been bullish on Tesla and its prospects despite the recent sharp decline in share prices. It is the right move.
Still, shares in U.S. premarket trading were lower as investors worried that the move might reduce bumper margins, especially as competition intensifies.
Tesla is an anomaly because it has still got eye-watering valuations when compared to the actual number it sells. “But ultimately, there are all of the other providers who sell a helluva lot more cars overall,” stated Michael Hewson chief market analyst at CMC Markets UK.
Many users online complained about the price cuts that disadvantaged Tesla owners who purchased vehicles recently, leaving them with lower second-hand prices.
One user commented on a forum called ‘Tesla Drivers and Friends.’ “Just reducing 10,000 Euros like that – definitely makes you feel like you just paid far to much,” he wrote.
China’s Tesla price cut last week of 6-13.5% was protested by owners who demanded compensation at delivery centers.
The trend in Tesla inventory in America before the cuts was tracked by models it website lists as being immediately available. The prices of used Tesla models were also dropping, which has increased pressure to adjust the new-car price.
Although Tesla had sold 75% of its sales in the United States and China for 2021, it has been growing its sales in Europe. Its Berlin plant is increasing its production.
SALES LEADERSHIP
Last week, Tesla made a major move in China and other Asian countries. This was its first major action since Tom Zhu was appointed as its chief executive for China and Asia. He will oversee U.S. sales and output.
Analysts believed that the Chinese price cuts would increase demand and put pressure on BYD to follow suit in what could be a price war for the largest single market of electric vehicles.
The Model 3 by Tesla was the most popular electric vehicle in Germany, closely followed by the Model Y. This beat Volkswagen’s all-electric ID. Volkswagen recently raised its entry-level ID.3 price to match the Model 3.
Tesla missed Wall Street estimates for fourth quarter deliveries. Musk’s prediction of 50% was also wrong, with deliveries growing by 40% for the full year.
($1 = 0.9224 euros)
Reporting by Zhang Yan in Shanghai, Hyunjoo Shin in Seoul, Victoria Waldersee, Berlin; Additional reporting from Bansari Mayur Camdar in Bangaluru; Writing and editing by Josephine Mason, Mark Potter, and Lincoln Feast in Singapore.