Tesla turns up heat on rivals with global price cuts

16 January 2023 - 07:10 By Reuters
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Tesla has cut prices for its Model X luxury crossover SUV and Model S sedan in the US.
Tesla has cut prices for its Model X luxury crossover SUV and Model S sedan in the US.
Image: Thierry Monasse/Getty Images

Tesla has slashed prices of its electric vehicles by as much as 20% globally, extending an aggressive discounting effort and challenging rivals after missing Wall Street delivery estimates for 2022.

The move marks a reversal from the carmaker's strategy over the past two years when new vehicle orders exceeded supply. It comes after CEO Elon Musk warned the prospect of recession and higher interest rates meant it could lower prices to sustain growth at the expense of profit.

Musk acknowledged last year that prices had become "embarrassingly high" and could hurt demand. Shares ended down 0.9% after falling as much as 6.4% on Friday. Last year, Tesla stock had its worst year since the company's inception due to slowing growth in China and Musk's distraction with Twitter.

Tesla lowered prices across the US, Europe, the Middle East and Africa, following a series of cuts last week in Asia, in what analysts saw as a clear shot at both smaller rivals that have been bleeding cash and legacy carmakers aggressively ramping up electric vehicle production.

“Competition is coming and they are responding with price cuts,” said Thomas Hayes, chair and managing member at Great Hill Capital.

The discounts may make EV cars affordable to people who were previously priced out of the market. US and French buyers could take advantage of the discounts and federal tax credits available in both countries for certain electric vehicle purchases.

The US 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 (roughly R887,732), down from $65,990 (roughly R1,105,519).

Those cuts are before a $7,500 (roughly R125,648) US federal tax credit that took effect for many electric vehicles on January 1 that could bring discounts to more than 30%.

Tesla also cut prices for its Model X luxury crossover SUV and Model S sedan in the United States.

Discounts kick in more subsidies in France, U.S

A spokesperson for Tesla Germany said lower cost inflation was also a factor in reducing prices in its top European market, without specifying which costs had fallen.

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 (roughly R813,000), down 9,100 (roughly R165,563).

It also reduced prices in Austria, Switzerland and France.

In France, customers buying the Model 3 for 44,990 (roughly R818,053) will get a further reduction through a government subsidy of 5,000 on an EV scheme with a threshold of 47,000 (roughly R854,601).

The move broadens the vehicles in Tesla's line-up eligible for the US President Joe Biden administration tax credit.

Before the price cut, the five-seat version of the Model Y had been ineligible, which Musk called "messed up". After the price cut, the long-range version of the Model Y will qualify.

Deutsche Bank estimated a Model Y, after tax credits, could be $18,000 (roughly R301,680) less than Ford's rival Mustang Mach E. Tesla's vehicle gross profit margins, which are among the highest in the industry, would drop 3 percentage points in 2023 versus 2022, it estimated, but Tesla's "bold offensive move" secured growth and put competitors in great difficulty, the broker said.

While Tesla shares fell, stocks of rivals were hit even harder.

US carmakers General Motors and Ford fell 4.5% and 6%, respectively, making them among the biggest losers on the broad-market S&P 500 Index, while in Europe, Stellantis fell 3.7% and Volkswagen dropped 3.6%.

Wedbush analyst Dan Ives said the move could boost global deliveries by 12% to 15% this year and shows Musk responding to growing competition.

'Punch in the gut'

Tesla fans and customers complained the price cuts disadvantaged those who had recently bought a vehicle.

Greg Woodfill in Seattle, who bought a Model Y in December, had considered waiting until the new year to get the US subsidy, but was lured by a discount at the time of $3,750.

The Tesla fan, who had previously owned a Model 3, said he was disenchanted with Musk's antics but decided to buy a Model Y because he loved Tesla products.

"It's a punch in the gut, to be honest," he told Reuters, adding that it feels unfair Tesla sought to boost fourth-quarter sales with discounts, only to cut prices even more a month later.

"If they knew they would drop the price this much, they should have done it in December."

In China, where Tesla cut prices last week by 6% to 13.5%, owners protested at delivery centres, calling for compensation.

For 2021, the USs and China combined had accounted for about 75% of Tesla sales, but it has been growing in Europe.

Tesla cut prices in China and other Asian markets last week, which analysts had said would boost demand and increase pressure on rivals, including BYD, to follow suit in what could become a price war in the largest single EV market.


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