Tesla Cuts Prices To Compete For EV Sales And Tax Incentives — Will The Discounts Be Enough To Spur Lagging Sales?

Key takeaways

• Tesla announced U.S. price cuts to all its models, ranging from $3,000 to $11,000.
• There are multiple reasons for the cuts, including slowing sales, an EV tax credit and more competition.
• No one knows for sure if these cuts will benefit or harm Tesla’s profit moving forward.

After cutting prices in China in 2022, Tesla announced significant price cuts to its products in the U.S. Many people are wondering about the reasoning for slashing prices. Is demand drying up? Is it due to more competition?

Here are the details about the price cuts and if they are an omen or an encouraging sign from Tesla. Plus, learn more about how Q.ai can help you get invested in a future of clean tech.

Details on Tesla price cuts

Tesla has cut prices on its lower-priced models in the U.S. and China. The price cuts vary by model but range between $3,000 to $11,000. For example, the price of the Model 3 was $46,990, and now it is $43,990. The Model Y was priced at $65,990 and is now $52,990. The Model S was selling for $104,990 and is now $94,990. The luxury Model X was priced at $120,990 and is now $109,990.

One aspect of the move is encouraging U.S. buyers to take advantage of federal tax credits offered on EVs priced under $55,000. Under the new Inflation Reduction Act, a buyer can get up to $7,500 back in tax credits on their purchase. By reducing the price of the Model Y, this vehicle now qualifies for the tax credit. This means the cost of the Model Y is effectively $20,500 (31%) less when you include the tax credit.

In addition to price cuts on its vehicles in the U.S., Tesla also cut costs on its Model 3 and Model Y vehicles in China to help boost demand from Chinese buyers. Tesla cut its prices in October 2022 and made another price slash in January 2023. Chinese buyers got anywhere from a 6% to 13.5% reduction in price, making the average price of a Tesla in China less than that of an identical model in the U.S. After the price cuts went into effect, there was backlash and protests from some Chinese Tesla owners who purchased their vehicles just before the price cuts were announced.

Prices were also reduced on cars sold in Germany, Australia, Japan, and South Korea, but by lower amounts than were announced for the U.S. and China.

Why Tesla is cutting prices

The company cites a host of pressures on its decision to lower the price of its models, with slowing sales being among the biggest reasons. This could be because Tesla raised prices on all of its vehicles numerous times in 2021 and early 2022. The price increases varied between $3,000 and $5,000, depending on the model.

Another factor is the behavior of CEO Elon Musk on Twitter. Many loyal Tesla owners are faltering on their loyalty to the brand as a result of all the negative news over the last year.

The company also points the finger at interest rate hikes, which have made it more expensive to borrow money, and the ending of China’s subsidies on electric vehicles.

Impact of lower prices on competitors

Legacy automakers in the U.S. won’t feel the impact of lower prices as they’re already producing less expensive EVs. The least expensive Tesla is the Model 3, which starts at $43,990. By contrast, Chevrolet is bringing EVs to market in late 2023, including the Equinox, with an estimated base price of $30,000. Its popular Bolt EV starts at $26,500. Other legacy automakers are offering EVs and hybrids at lower prices than Tesla’s base pricing, showing that they’re not concerned about Tesla’s pricing strategies.

However, the price cuts could be an early warning sign for other automakers. Most car manufacturers have been increasing the prices of electric vehicles over the years as demand has been sky high. Tesla could simply be first in line to reduce prices as demand slows.

Additionally, with so many EVs coming to market, it will be a crowded field and difficult to stand out. By lowering its prices now, Tesla hopes to better position itself against the competition. It would not be surprising if other manufacturers begin to cut prices later in 2023 or offer rebates after more EVs are on dealer lots to be sold.

The January 2023 price cuts have already affected the competition in China as Tesla’s market share in the country has spiked since the cuts. The Model 3 is now within $1,000 of the price of BYD’s Seal and the same price as BYD’s Han model.

BYD, a Chinese EV manufacturer, has been outselling Tesla, with in-country retail sales doubling in December 2022. Tesla’s sales fell 42% during the same time frame. BYD has commented that it would adjust prices based on consumer demand for its vehicles.

Is now the time to buy Tesla stock?

Tesla’s share price lost about 70% of its value in 2022 but has risen steadily in the new year. Some of the loss in value was due to Mr. Musk’s sale of his shares to finance the purchase of Twitter, something he did multiple times despite repeated promises not to. Mr. Musk’s unpredictable behavior has also helped devalue Tesla’s stock, making it hard to trust the company’s governance.

As a whole, Tesla is maturing into a traditional automaker and starting to deal with pressures from seasoned automakers and new EV companies. Lower prices for its vehicles could potentially hurt the share price going forward, but it is also starting to deal with unsold inventory. For years, Tesla could barely fulfill its orders and sold every car coming off the assembly line. Now it has to balance price cuts to sell the excess while staying mindful of the impact on its share price.

The company’s stock price has been experiencing sharp swings in the past few weeks, making it difficult to see what the future holds for Tesla’s stock price in the near term. However, it’s a good time to buy Tesla while it’s still experiencing some of its lowest pricing in years. The company still has room for a lot of growth, and it has been at the forefront of EV development, giving it an advantage in terms of supporting its product.

Even though its CEO is unpredictable, Tesla has no intention of giving up and becoming a middle-of-the-road auto manufacturer any time soon. Its stock price may take a long time to return to its lofty highs, but this may also be an opportunity to buy a solid performer at a value price and tuck it away in the portfolio for a long-term hold.

With that said, if an investor feels it is still too early to take a position in Tesla, another option would be to invest in the Clean Tech Kit from Q.ai. This kit uses artificial intelligence to spot trends in the market and take advantage of them before the rest of the market does.

The bottom line

The price cuts from Tesla could be viewed in multiple ways. The negative outlook is that demand is slowing, and people are no longer as fanatic about the automaker as they once were. The positive outlook is that after significantly raising prices, Tesla has found the limit of how much buyers are willing to pay. The price cuts may help the company to find the sweet spot of maximum revenue per vehicle sold while still moving inventory.

Because it is too soon to tell if either of these outlooks is correct, the debate over whether price cuts are good or bad will continue for some time. Only after a few more earnings releases will investors get a better idea of the outcome.

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