What’s behind Tesla’s drastic price cuts

Illustration: Maura Losch/Axios

A growing number of competitors are threatening Tesla’s global dominance in electric vehicles and putting it in an unknown position, that of defense.

Why is this important: This pressure, coupled with less favorable economic conditions, prompted the company to drastically cut prices in order to generate new demand for its cars.

  • “Tesla has always been an anomaly in the automotive space … the underdog as a shiny, shiny new object,” Jessica Caldwell, Edmunds’ executive knowledge manager, told Axios.
  • “The decision they just made to protect their market share and their own growth [is] such a traditional move among automakers,” Caldwell said.

Catch up fast: Last week, Tesla lowered the prices of its Model 3 and Model Y vehicles – among the best-selling cars in the world.

  • The cuts ranged from 1% to 20% in the company’s key markets – the United States, China and Germany.
  • In China specifically, Tesla’s price cut was the second in less than three months.
  • There were also cuts in Japan and South Korea of ​​around 10%.

In the USA, Tesla has one of the highest brand loyalty rates among luxury car names and continues to dominate new electric vehicle registrations.

  • But its market share has fallen from 79% of new electric vehicles in 2020 to 65% in September last year, according to S&P Global Mobility.
  • “Tesla’s EV-only strategy gives it a retention advantage – because few EV owners have returned to [internal combustion engines]. But as new electric vehicles arrive, loyalty will be tested,” the report concludes.
  • The most serious threats come from electric vehicles priced below $50,000, “where Tesla isn’t really competing yet.”

Be smart: With the cuts in the United States, more Tesla models will be eligible for the newly revised $7,500 tax incentives that began in January. 1 under the Reduction of Inflation Act.

  • The credit applies to electric vehicles under $55,000, which means models like the top-of-the-line Model 3 Performance now at $53,990 (down 14% from $62,990) and the Model Y long-range all-wheel-drive at $52,990 (down 20% from $65,990) might be more attractive.

To note: Tesla had raised prices over the past two years as rising inflation increased the cost of its inputs. CEO Elon Musk said last year that the company’s prices had become “embarrassing” and he hoped to bring them down.

  • “I think inflation will come down towards the end of the year,” he said. “I’m hopeful – and that’s not a promise – but hopefully at some point we can reduce the prices a bit.”

What to watch: Consumer loyalty.

  • People who bought their vehicles before the cuts lament tens or thousands or dollars in savings they barely missed.
  • Furious customers in China demanded discounts and protested the company at showrooms and distribution centers.
  • A measure of business preference has fallen 15 percentage points since the start of last year.

Our thought bubble, via Axios transportation correspondent Joann Muller: Tesla only has two major arrows in its quiver – the Model 3 and the Model Y. And that may not be enough to entice buyers whose heads may be turned by a far greater one number of options from other manufacturers.

Go further: Tesla stock plunge intensifies outlook divide

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