Tesla Cuts Prices Sharply as It Moves to Bolster Demand

Source: By Neal E. Boudette, New York Times • Posted: Sunday, January 15, 2023

The price reductions in the United States will make more of the company’s electric vehicles eligible for a federal tax credit.

A red 2021 Model 3 sedan connected to a charger.
Tesla’s Model 3 Performance compact is selling for just under $54,000, down from $63,000.David Zalubowsk/Associated Press

Tesla has cut prices on most of its electric cars in the United States and Europe by as much as 20 percent in a bid to spur slackening demand.

The automaker faces increasingly stiff competition in the global market for electric vehicles. It also must contend with rising interest rates in the United States, which have increased the cost of financing vehicle purchases.

“I think Tesla recognizes they are not the only game in town and the Detroit companies are jumping into the deep end with E.V.s,” said Dan Ives, a Wedbush analyst. “I think the price cuts mean Tesla is going to rip the Band-Aid off and try to go on the offensive.”

Tesla stock fell sharply in early trading Friday after the price cuts were reported, but ended the day less than 1 percent lower. The share price has fallen roughly 70 percent since November 2021.

The cuts will allow some of Tesla’s lower-priced models, depending on optional features, to qualify for federal tax credits of $7,500 that were made available starting Jan. 1 under the Inflation Reduction Act. The credit is available on electric cars priced under $55,000.

Tesla has enjoyed rapid growth for the last decade but now must contend with a variety of challenges, including concerns that its chief executive, Elon Musk, is too preoccupied with Twitter, the social media platform he acquired last year for $44 billion.

Mr. Musk has sold billions of dollars of Tesla stock to finance the Twitter acquisition, which has depressed Tesla’s stock price, and he has come under fire for firing a large portion of Twitter’s employees. He has also aired polarizing political views on the social media platform — including several messages that appeared to support Russia in its war against Ukraine — that have hurt his and Tesla’s reputation with some consumers.

Tesla is not alone in dealing with slowing sales. U.S. auto sales fell about 8 percent last year to fewer than 14 million cars and trucks, the lowest level since 2011, mainly because shortages of computer chips prevented manufacturers from producing as many vehicles as consumers wanted to buy. In addition, rising borrowing rates made customer financing more expensive.

Sales of electric vehicles, however, rose 66 percent to more than 808,619, according to Kelley Blue Book, a market researcher. And while Tesla continues to dominate the segment, several automakers are gaining ground. Ford, Volkswagen and several other automakers posted sizable increases in E.V. sales last year and offer many models that were significantly more affordable than Tesla’s. Hyundai and its affiliate Kia together sold more than 43,000 electric vehicles in the United States in 2022, up from a just few hundred in 2021.

New competitors are on the way, too. This year, General Motors is supposed to start making electric versions of its Chevrolet Silverado pickup and Chevrolet Blazer and Equinox sport utility vehicles.

Tesla has also had trouble in China, its largest market, where a local manufacturer, BYD, is now the No. 1 electric vehicle brand. Tesla recently lowered prices in China and reported a global sales total for 2022 that was below analysts’ expectations.

While still hailed for the advanced technologies it packs into its cars, and their sleek styling, Tesla has been slow to add to its model line. It offers only four vehicles, and two are luxury models out of reach of most mainstream consumers. It last introduced a car in 2020, when the Model Y went into production.

Since 2019, Tesla has promised to introduce a pickup, called the Cybertruck, but has delayed its production several times. The company now hopes to begin making it this year. The Cybertruck has an angular, futuristic design and is expected to be sold as a luxury vehicle, which could limit its appeal. In the past, Mr. Musk has expressed a desire to produce an electric car that can sell for around $25,000, but he has laid out no formal plans.

In December, Tesla began delivering a small number of battery-powered semi trucks to PepsiCo, its first customer.

“We see demand problems remaining until Tesla is able to introduce a lower-priced offering in volume, which may only be in 2025,” Toni Sacconaghi, a Bernstein analyst, said in a report this month.

In cutting the prices of its current models, Tesla is indicating that it is willing to concede some profit in order to increase sales volume. The company typically shows gross profit margins of 26 percent — more than double that of some rival automakers — a factor that led investors to bid up its stock, making it the world’s most valuable car company.

The latest price cut on Tesla vehicles appeared on the company’s website late Thursday. The automaker now shows a high-end Model 3 Performance compact selling in the United States for just under $54,000, down from $63,000, a cut of 14 percent.

The most affordable version of the Model 3 now sells for just under $44,000, a reduction of about $3,000 or 6 percent. The Model Y now starts at $53,000, a cut of 20 percent from the previous price of $66,000.

The company’s websites for Germany, France and other European nations showed similar price cuts. The base Model 3 is now listed at 44,000 euros, a reduction of about 12 percent from the previous price.

In the past, Tesla’s sales were helped by $7,500 tax credits provided by an earlier federal program. Those credits were no longer available after Tesla sold 200,000 vehicles in the U.S. market, but the company’s sales continued to grow rapidly. Tesla has forecast that its sales will grow about 50 percent a year for the next few years.

Tesla sold 1.3 million cars in 2022, a 40 percent increase from the year before but short of the 50 percent target.

The company seemed to weather the computer chip shortage early in the pandemic better than most other automakers. Many had to idle plants temporarily at times because of shortages of certain electronic parts. Although Tesla, too, was affected, it said it was able to rewrite software that could run on substitute chips that were in more plentiful supply.

Tesla’s fourth-quarter production of 440,000 cars was 34,000 more than the company delivered, suggesting that the sluggishness went beyond supply chain problems and production issues.