Tesla cuts prices in the U.S. and Europe to stoke sales after lackluster year-end deliveries

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The Tesla Model Y (left) and Model 3 electric cars at the company’s official launch event in Bangkok on Dec. 7, 2022. The Model 3 is the company’s entry-level sedan. The Model Y is categorized by some as an SUV and others as a crossover.
Lillian Suwanrumpha | Afp | Getty Images

Electric vehicle maker Tesla is cutting prices in the United States and throughout Europe again, according to listings on the company’s website on Thursday night in the U.S.

Tesla did not respond to a request for comment on what motivated it to slash prices this week.

However, the move in the U.S. may help Tesla qualify for more federal EV tax credits, and stoke sales volume here and abroad, after competition and interest rates increased.

In Europe, Tesla cut prices on its Model 3 and Model Y vehicles in Austria, France, Germany, the Netherlands, Norway, Switzerland and the U.K.

Reuters reported that in Germany, Tesla cut prices on the Model 3 and the Model Y from 1% to around 17%, depending on the configuration. Tesla’s Model 3 was the bestselling electric vehicle in Germany in December 2022, followed by the Model Y. The company beat out Volkswagen and its popular electric vehicle the ID.4 in Germany.

Tesla’s Model 3 at its discounted price is comparable to Volkswagen’s entry level electric car, the ID.3.

According to the independent EV industry researcher, TroyTeslike, the price of a new Tesla Model 3 in the U.S. has dropped between 6% and 14%, depending on configuration, and the cost of the Model Y dropped about 19%, also depending on configuration.

The Model 3 is Tesla’s entry-level sedan. The Model Y is categorized by some as a sport utility vehicle and others as a crossover. The company also lowered prices of its more expensive, Model S sedan and falcon-wing SUV Model X vehicles in the U.S.

Generally, EVs qualify for tax credits in the U.S., depending on what form factor or category they fall into, their efficiency and range (meaning the number of miles they can travel on a fully charged battery) as well as the manufacturers’ suggested retail price.

The U.S. government has delayed setting new rules about sourcing of raw materials and battery components to qualify automakers for a $7,500 clean vehicle tax credit until at least the end of March 2023.

This means that Tesla — and other EV makers — can buy parts and critical minerals from suppliers around the world for now, and still qualify for some EV subsidies. Those seeking to qualify for federal subsidies do need to complete final vehicle assembly of their electric cars in North America under current, interim rules.

The latest round of discounts by Tesla may set the company up to reap the benefits of EV tax credits in both the near and longer term. But it also risks upsetting customers who just agreed to take delivery of new electric cars from Tesla before the end of 2022 at higher prices.

Earlier this month, Tesla angered customers in China by slashing prices on its Model 3 and Model Y cars there after many had agreed to take delivery at higher prices before Dec. 31. Some of the customers staged protests and demanded rebates, but so far, Tesla has not relented, according to a Reuters report.

In late December, Tesla discounted its Model 3 and Model Y cars by about $7,500 to entice customers to take deliveries before the end of the fourth quarter. Tesla also offered some U.S. customers 10,000 miles’ worth of free charging (at Tesla Supercharging stations) if they agreed to take delivery before the year’s end.

Despite the discounts, in the fourth quarter of 2022, Tesla reported deliveries of 405,278 vehicles and production of 439,701 vehicles. The company had been telling shareholders to expect 50% in annual vehicle delivery growth over a multiyear horizon but fell shy of that annual goal and analysts’ expectations in the fourth quarter.

Tesla now operates its first U.S. vehicle assembly plant in Fremont, California, a newer one in Austin, Texas, its first overseas factory in Shanghai, and a newer one in Gruenheide, Germany.

The company’s production capacity should be much higher in 2023 than in previous years with those factories, but bearish analysts have voiced concerns over a possible “demand cliff.”

Tesla is now facing more competition, higher interest rates and slower consumer spending than in recent years, Bernstein analysts wrote in a note on Jan. 12.

They said, “We believe that many investors underestimate the magnitude of the demand challenges Tesla is facing.” However, the firm has had an “underperform” rating and price target of $150 on shares of Tesla after the company’s share price declined in recent months.

CEO Elon Musk sold billions of dollars’ worth of his Tesla shares last year, in part to finance a leveraged buyout of Twitter for around $44 billion. Since he took over Twitter and appointed himself CEO in late October, Musk has been splitting time, and sharing some resources, between the social media business and his electric car company.

Tesla plans to report its 2022 fourth-quarter results on Jan. 25, 2023, and should share its new outlook for the year ahead then.

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