Tesla has cut prices on its entire U.S. electric vehicle model lineup for the third time this year, in a move to attract more buyers amidst rising interest rates. The biggest discounts came on Tesla’s slower-selling, more expensive models, the S large sedan and the X big SUV, which had $5,000 shaved off their price tag. The Y small SUV, Tesla’s most popular model, saw a $2,000 price cut, with the company adding a lower-cost dual-motor version priced at $49,990. The 3 small sedan also saw a $1,000 price cut.
Tesla's recent price cuts have raised demand despite increasing interest rates, which have climbed from 4.5% to 7% since the U.S. Federal Reserve began raising rates in March of last year. Although some analysts speculate that Tesla was cutting prices to take advantage of its profit margin per vehicle, which is larger than most automakers, CEO Elon Musk said that demand is limited by affordability, tweeting that "if the price is more money than people have, that demand is irrelevant."
However, some analysts are keeping an eye on the impact of the price cuts on Tesla's profit margins per vehicle. Tesla will release its first-quarter earnings after the markets close on April 19. Guidehouse Research e-Mobility Analyst Sam Abuelsamid said that the cuts are a sign of slowing demand for Tesla, and the company needs to sell more vehicles to keep its factories running at full capacity to protect high-profit margins. He said that "overhead of underutilized plant eats up margin extremely quickly."
Tesla's recent price cuts may also increase market share and put pressure on startups and legacy automakers now rolling out EVs. Tesla has added a huge plant near Austin to its U.S. factory footprint, in addition to its original plant in Fremont, California. The company also has built new plants in Shanghai and near Berlin.
The move is a response to Tesla's first-quarter sales growth of 36%, which fell short of analysts' expectations. Tesla said that it delivered a quarterly record of 422,875 vehicles worldwide from January to March, up from just over 310,000 a year ago. However, the increase fell short of analyst estimates of 432,000 for the quarter, according to FactSet.
Share Your Thoughts