Tesla has cut the price of its most expensive model in the US for the second time this year, adding to the drastic price increase that will lead to a decrease in demand in 2022.
The starting price of the Model S has been reduced by 5 percent to $89,990 while the cost of the lowest model X has dropped by 9 percent to $99,990, according to the company’s website.
Tesla announced significant price increases for many vehicles in 2021 and 2022 due to component shortages and long waiting lists, only to reverse in January this year due to weaker demand and increasing competition.
The Model X’s starting price rose from about $99,000 to more than $120,000 last year, helping prop up Tesla’s industry-leading profit margins but contributing to disappointing new vehicle deliveries in the final months of 2022.
Chief executive Elon Musk said last week that January’s price cuts in all markets and most Tesla models had a direct impact on driving higher sales. Tom Zhu, the head of Tesla China and the executive in charge of the company’s global manufacturing plants, also said the price cuts led to an increase in market share in China, where Tesla has been facing new competition.
Speaking at Tesla’s first investor day, Musk claimed that the demand for Tesla vehicles is “infinite” and that the only thing holding buyers back is affordability, although he did not address the impact of the company’s previous price hikes on sales.
Tesla’s stock price fell more than 2 percent on Friday, but Wall Street has welcomed Musk’s aggressive move to reduce prices to defend sales this year, even at the risk of eating into profits. Shares have risen 80 percent since the start of the year on hopes that Tesla will be able to take market share from rivals who have struggled to make a profit from electric vehicle sales.
Musk shined a spotlight last week on the many actions Tesla has taken throughout its operations to reduce costs while still improving vehicle performance. The move should reduce production costs for next-generation electric vehicles by 50 percent, he said, raising hopes for a new, cheaper electric vehicle that will help Tesla fend off increasing competition.