Big Tesla price cuts mean ‘a big shift in the electric car market’

Can Tesla remain the leader in the modern electric vehicle market it has effectively created?

This question has been on the mind of EV buyers, investors, analysts, industry watchers, and Elon Musk for months. This has been particularly the case as questions about demand in China and the US — not to mention the drama on Twitter — seem to overshadow the electric car maker’s success story.

On Thursday night, Tesla revealed its answer to that problem, at least for now: steep price cuts on its lineup, which in some cases amount to as much as 30 percent when the latest tax breaks for electric vehicles are also applied.

Can Tesla remain the leader in the modern electric vehicle market it has effectively created?

What’s more, some price cuts now qualify cars for those tax credits in the first place.

analysts who spoke with them the edge Friday stressed the importance of these cuts and said they could have profound effects not only on the Tesla brand but on the increasingly competitive EV game. Some have even said this could be the first shot in a looming electric car “price war”, even as automakers struggle to source enough materials to put these cars on the road en masse.

“Tesla’s recent price cuts reflect a significant shift in the electric vehicle market,” said Jessica Caldwell, executive director of insights at car-buying site Edmunds. “In 2023, a wave of new electric vehicle options will hit the market, but since production will be limited for most manufacturers, Tesla is positioning itself to attract consumers who are unwilling to wait or who may be on the fence about electric vehicle technology by enticing them With one thing all buyers respond to – a bargain.”

Potential Tesla customers will likely be very pleased with Thursday’s news. Form 3 performance, for example, dropped from about $63,000 to $54,000 before any tax credits. The Model Y’s performance dropped from about $70,000 to about $57,000, also before the tax credits.

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Tesla’s recent price cuts reflect a significant shift in the electric vehicle market.

“Changes to consider especially for the Model Y, with some configurations seeing MSRPs drop by as much as $13,000, really is an amazing discount that’s rare in the industry,” said Robby DeGraff, an auto analyst. AutoPacific Research Corporation. In addition, these more accessible prices mean that certain configurations of the Model 3 and Model Y, typically two of the best-selling electric vehicles in the country, should now be eligible for additional discounts of up to $7,500 thanks to federal EV tax credits. revised.”

Tesla slashed prices the automaker’s offerings far less than many competitors. The Model 3’s standard range, in particular, is now a lot closer The Model 3 was long promised but never materialized at $35,000 More than ever.

The price cuts follow a similar move in China last week. There, Tesla has slashed its prices by as much as 13 percent, the third such move in recent months as it battles for electric vehicle supremacy with domestic automakers such as BYD.

In the US, the move was also timed to coincide with changes to the electric vehicle tax credit under the Inflation Reduction Act. This legislation incentivizes tax credits for electric vehicles assembled in North America, as well as batteries assembled here as well.

Caldwell said the cuts, intended to protect Tesla’s market share, also mark its transition from a “market anomaly” to a major automaker. the The average price of a new electric vehicle will be around $65,000 at the end of 2022even higher than the new astronomical prices for internal combustion cars recently.

Tesla slashed prices the automaker’s offerings far less than many competitors.

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It is one way to stay ahead of the competition. For a long time in the US, Caldwell said, Tesla was virtually the only EV manufacturer not making “compliant vehicles” — expensive convertible electric cars with low range made to meet local regulations. “But for now, Tesla has to be competitive in multiple areas including price, design and performance,” she said.

That will prove increasingly difficult in 2023. This year, every major automaker and many startups are collectively planning a new EV offensive, nearly all of them featuring an impressive range of vehicles, advanced features and an unprecedented level of software integration.

While Tesla’s lineup is more than competitive in those areas, it’s one that’s getting old; This year’s Model S is now 10 years old, while the best-selling Model 3 is six years old. And Tesla appears to have a few well-known new products in the immediate pipeline besides the long-awaited Cybertruck and Roadster.

At the same time, another Edmunds analyst said the edge In December, discounts are often a hallmark of less exclusive, more budget-friendly brands; Nissan in particular has struggled with the effects of this strategy for years.

Tesla must be competitive in multiple areas including price, design and performance.

“Like the major automakers, Tesla will need to grapple with what these price cuts will mean for its residual values ​​and brand image,” Caldwell said.

Moreover, many existing Tesla customers — including those who paid more for the same vehicles they bought in December — appear unhappy with the move, fearing the impact on their vehicles’ resale values. Many took to social media on Friday, including Twitter, the platform Musk personally owns, To file a complaint or request discounts on other services.

However, there seems to be some drama unfolding among the shoppers who Just “Exactly bought Tesla cars, at higher costs, before these big price drops are announced, things can get ugly and Musk may need to figure out a way to put out those fires,” DeGraff said.

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Meanwhile, Tesla owners in China took to the streets to protest price cuts last weekend and this week, saying the decision negatively affected their resale values. While it’s unlikely that customers in the US and Europe would go that far, one group of people found themselves perfectly happy with the decision: long-term Tesla investors.

While the initial reaction to these cuts will naturally be negative [Wall] said Dan Ives, a technology analyst at Wedbush Securities who is bullish on Tesla but has been highly critical of Musk’s actions in recent months.

“We think that all of these price cuts could spur demand/delivery by 12 percent to 15 percent globally in 2023, and it shows that Tesla and Musk continue to ‘attack’ to stimulate demand in a downturn,” Ives said. “This is a clear shot across the bow at European automakers and US powerhouses (GM and Ford) that Tesla isn’t going to play nice in the sandbox with the EV price war now underway.”

As with most deals in life, there seems to be at least one problem. While the new rules about EV tax credits are Mysterious, sophisticated and sometimes very confusingMany observers have pointed out that the full benefit of these rebates — price cuts and tax credits combined — hinges on Tesla taking delivery before March 31. This is when the rules regarding battery sources are changed.

Unless something changes with the tax breaks, and it’s very likely, these deals will depend on Tesla being able to deliver the cars to meet whatever demand has arisen in the last 24 hours.

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