Tesla ( TSLA.O ) has slashed the price of its electric vehicles in the United States and Europe by 20%, extending its aggressive discounting strategy after missing Wall Street estimates for 2022 deliveries.
The move, which sent Tesla shares down 4.5% in pre-market US trading, came after CEO Elon Musk warned that the prospect of a recession and higher interest rates meant he could lower prices to maintain volume growth at the expense of profits.
The lower prices in Tesla’s main market mark a reversal of the strategy the carmaker has been pursuing for much of 2021 and 2022 when orders for new vehicles outstrip supply. Musk admitted last year that prices had become “embarrassingly high” and could be affecting demand.
More stable cost inflation was also a factor in the price cut, a German Tesla spokesman said, confirming the price cut in the top European market.
The US price cuts, announced late on Thursday for the top global supplier of the Model 3 sedan and Model Y crossover SUV, ranged between 6% and 20%, Reuters calculations showed.
The base version of the Model Y now costs $52,990, down from $65,990 previously.
This was before the federal tax credit of up to $7,500 that applied to many electric vehicle models at the beginning of January.
Below is a table of price cuts by model in Germany and the United States:
Tesla also cut prices for its Model X luxury crossover SUV and Model S sedan in the United States.
In Germany, prices on the Model 3 and Model Y were cut between 1% and almost 17% depending on the configuration. It also reduced prices in Austria, Switzerland and France.
For US long-distance Model Y buyers, the price of a new Tesla combined with US subsidies comes to a 31% discount. Additionally, Tesla’s move expands the lineup of vehicles eligible for the Biden administration’s tax credit.
Before the price cut, the five-seat version of the Model Y was already ineligible for the credit, which Musk called “a mess.” After the price cut, the long-range version of the Model Y will be available.
These cuts could make EVs affordable for people who were previously priced out of the market.
In France, customers who buy a Model 3 for 44,990 euros ($48,773) will now get a lower price through a government subsidy of 5,000 euros. The threshold for the EV scheme is 47,000.
“This should boost 2023 (Tesla) volume,” Gary Black, a Tesla investor who remains bullish on the company and its prospects through recent stock price declines, said in a tweet. “It’s the right move.”
Still, stocks were lower in US pre-market trading, as investors worried that the move could hurt bumper margins, especially as competition intensified.
“Tesla is an outlier because it still has eye-watering valuations when it comes to the number of cars it actually sells. But in the end there are all the other providers who sell a hell of a lot more cars overall,” said Michael Hewson, chief. market analyst at CMC Markets UK.
Some users on online Tesla fan forums have also complained about price cuts that disadvantage those who have recently purchased the vehicle, making it cheaper.
“Just dropping 10,000 euros like that – definitely makes you feel like you’re paying too much,” one user wrote on the ‘Tesla Drivers and Friends’ forum.
In China, where Tesla cut prices last week by 6-13.5%, owners protested at delivery centers, demanding compensation.
Prior to the cut, Tesla’s inventory in the United States, as tracked by the website’s model showing immediate availability, had been trending higher. Prices on used Tesla models have also fallen, increasing pressure to adjust prices for new cars.
In 2021, the United States and China combined will account for about 75% of Tesla’s sales, although sales are rising in Europe, where the Berlin plant has increased output.
SALES LEADERSHIP
Tesla cut prices in China and other Asian markets last week in the first major move since appointing its chief executive for China and Asia, Tom Zhu, to oversee US output and sales.
Analysts have said the Chinese price cuts will boost demand and increase pressure on existing rivals, including BYD (002594.SZ), to follow suit in what could be a price war in the largest single market for electric vehicles.
Tesla’s Model 3 was the best-selling electric vehicle in Germany last month, followed by the Model Y, beating Volkswagen’s ( VOWG_p.DE ) all-electric ID. Volkswagen has recently raised the price of its entry-level ID.3, matching the now-discounted Model 3.
Tesla missed Wall Street estimates for fourth-quarter deliveries. Full-year shipment growth was 40% — well below Musk’s own forecast of 50%.
Source: Reuters
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