Tesla has slashed prices in its four major vehicles worldwide since last week. From Reuters:
The U.S. price cuts on Tesla’s global top-sellers the Model 3 sedan and Model Y crossover SUV were between 6% and 20%, Reuters calculations showed, with the basic Model Y now costing $52,990, down from $65,990.
In Germany, Tesla lopped prices by about 1% to almost 17% on the Model 3 and the Model Y. The best-selling Model Y will now go for 44,890 euros ($48,499), down 9,100 euros.
It also reduced prices in Austria, Switzerland and France.
In France, customers buying the Model 3 for 44,990 euros will now get a further reduction through a government subsidy of 5,000 euros on an EV scheme with a threshold of 47,000 euros.
Reuters
Good and Bad
The good is easy to state. More people can afford an electric vehicle, and the large price decreases will enhance Tesla’s sales. Two of my friends bought Model Y’s over the past week. These sales have a high chance of replacing gas and hybrid sales at the same price level.
Additionally, competitors will need to cut EV prices to compete. That’s tough, because all of Tesla’s EV competitors are supply constrained. This will force them to aggressively expand battery supplies. That’s good in the long term for reducing climate pollution.
The bad is simple, too. Auto manufacturers that have lagged getting batteries and counted on fat profits will face pressure to lower prices and have lower margins. Tesla hopes lower margins are offset by higher sales. If you are a competitor spending billions on new battery / EV factories and upskilling workers, this news ruined your week. If companies can’t produce enough vehicles, they will need to raise more money from investors. Smaller companies with no tangible products may be acquired for their talent or declare bankruptcy.
Some other bad news, if you bought your car in Q4 at higher prices, you are out of luck. This has many buyers mad. They missed the big sale and eligibility for incentives. Personally, that’s bad for brand strength and image.
Example of how a US Tesla Model Y LR price change would work
The Model Y LR went down 20% in price. Hypothetically, suppose Tesla sold 100,000 every quarter. For Tesla to break even on revenue, the quantity sold for the Model Y would need to go up 25% (1 / (1 – 20%)) to 125,000 sales per quarter. If sales go up 25% or more, Tesla will make more revenue (sales). If they go up less than 25%, Tesla will have lower revenue. We can deduce models with larger price changes is where Tesla has more capacity and wants to stimulate demand.
A corollary – Tesla’s stock price leads vehicle price changes
There’s a casual observation here. When Tesla’s price was zooming up, car prices quickly followed. With Tesla’s disastrous stock price last year, prices have come down. Maybe Elon’s fortunes determine car prices? Wouldn’t be too crazy at all if that was true.
Given the magnitude of the changes, we’ll only see further reductions if these changes are not enough.
For the EV buying public and the one world we share, this is a reason for celebration.
Sincerely yours,
smilingdad
smilingdad 