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Tesla cuts vehicle prices in bid to boost flagging demand

Published:Sunday | March 5, 2023 | 12:05 AM
A Tesla sedan gets a charge at a Tesla Supercharging station.
A Tesla sedan gets a charge at a Tesla Supercharging station.
AP PHOTOS
FILE – A sign bearing the Tesla company logo is displayed outside a Tesla store in Cherry Creek Mall in Denver, Colorado, February 9, 2019. Mexico is undergoing competition among several states in 2023 to attract a possible Tesla facility.
AP PHOTOS FILE – A sign bearing the Tesla company logo is displayed outside a Tesla store in Cherry Creek Mall in Denver, Colorado, February 9, 2019. Mexico is undergoing competition among several states in 2023 to attract a possible Tesla facility.
FILE – A Tesla charges at a station in Topeka, Kansas, Monday, April 5, 2021. Tesla says it sold a record 1.3 million electric vehicles in 2022. But the number fell short of CEO Elon Musk’s pledge to grow the company’s sales by 50% nearly every year.
FILE – A Tesla charges at a station in Topeka, Kansas, Monday, April 5, 2021. Tesla says it sold a record 1.3 million electric vehicles in 2022. But the number fell short of CEO Elon Musk’s pledge to grow the company’s sales by 50% nearly every year.
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With its sales slowing and its stock price tumbling, Tesla Inc recently slashed prices dramatically, on several versions of its electric vehicles, making some of its models eligible for a new federal tax credit that could help spur buyer interest.

The company dropped prices nearly 20% in the United States on some versions of the Model Y SUV, its top seller. That cut will make more versions of the Model Y eligible for a US $7,500 electric-vehicle tax credit, which will be available through March. Tesla also reduced the base price of the Model 3, its least expensive model, by about 6%.

Since the start of last year, the stock has plummeted more than 65%. Many investors fear that Tesla’s sales slowdown will persist and have grown concerned about the erratic behaviour of CEO Elon Musk and the distractions caused by his $44 billion purchase of Twitter.

“I think the real driver for all of this is falling demand for Teslas,” said Guidehouse Research e-Mobility analyst Sam Abuelsamid.

Based on the current short delivery times for Tesla vehicles that once were months long, Tesla’s once-sizable order backlog may have been depleted, said Scott Case, CEO of Recurrent, who analyses the new and used EV markets.

“We think it’s now more of a competition thing,” he said.

Unlike many of its rivals, though, Tesla can still make money on EVs for one crucial reason, Case said: The company enjoys high profit margins, thanks to manufacturing and battery efficiencies.

Competitors generally lack Tesla’s economies of scale and other efficiencies and may struggle to match the price cuts. If so, Tesla could manage to keep vehicle sales at sufficient levels.

“They can afford to make this cut and not be lighting money on fire,” Case said.

Tesla still faces the threat of intensifying competition from other automakers in the United States and globally for years to come. Last year in the United States, total EV sales soared nearly 65% from 2021. Automakers sold 47 electric vehicle models; only four were Teslas. S&P Global Mobility expects the number of EV models to surge to 159 by 2025.

MARKET SHARE FALLING

And as overall EV sales are rising, Tesla’s US market share is falling. From 2018 through 2020, Tesla represented about 80% of the EV market. By 2021, that figure had sunk to 71%, and it has continued to decline, according to registration data gathered by S&P.

Still, Tesla’s US sales rose 40% last year, and S&P expects them to continue to rise as overall electric vehicle sales steadily increase.

Even with U S tax credits, EVs remain pricey compared with gas-powered vehicles, largely because of the high cost of batteries. In addition, higher loan rates and more expensive raw materials are keeping costs high for buyers and could limit EV sales for Tesla as well as its competitors.

Edward Jones analyst Jeff Windau said those factors are reducing demand for all vehicles, not just Teslas.

Musk’s provocative behaviour on Twitter may also be a factor in lower demand. Since taking over the social media platform in October, Musk has loosened restrictions on hate speech and other questionable conduct.

He has repeatedly engaged with figures on the right and far-right and has frequently attacked what he describes as the “woke mind virus”– a pejorative umbrella term for liberal views that Musk asserts are threatening civilization.

Musk’s views are sharply at odds with those of many environmentally conscious Tesla customers who lean Democratic. Survey data from Morning Consult Brand Intelligence shows that in the past year, the number of Americans who view Tesla favourably has dropped. In January of 2022, nearly 43% had a favourable opinion of Tesla, with nearly 15% negative. By this month, those with favourable opinions had dropped to 37%, while the negative views rose to 24%.

Case said he has heard long-time Tesla buyers say during the past six months that they aren’t sure about being seen in a Tesla anymore and that they would now consider buying an EV from a competitor.

With Tesla’s recent price cuts, its Model Y Performance model, formerly priced at nearly US $70,000, now starts at just under US $57,000. The starting price of the Model 3, Tesla’s lowest-priced vehicle, was cut to just under US $44,000 from US $47,000.

The company’s decision to drop the base price of the Model 3, which had already been eligible for the federal tax credit, was a clear sign that demand had weakened, Abuelsamid noted.

Tesla has added two huge factories in Austin, Texas, and Berlin that are running at only a fraction of their output capacities, “which is undoubtedly costing them dearly,” Abuelsamid said.