A 2021 Tesla Model 3 sedan sits in a near-empty lot at a Tesla dealership in Littleton, Colorado in this June 27, 2021 file photo. (DAVID ZALUBOWSKI / AP)
Tesla Inc has slashed prices globally on its electric vehicles by as much as 20 percent, extending an aggressive discounting effort and challenging rivals after missing Wall Street delivery estimates for 2022.
The move marks a reversal from the automaker's strategy over the last two years when new vehicle orders exceeded supply. It comes after CEO Elon Musk warned that 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 percent after falling as much as 6.4 percent on Friday.
Competition is coming and they are responding with price cuts.
Thomas Hayes, Chairman, Great Hill Capital
Tesla lowered prices across the United States, 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 automakers aggressively ramping up electric vehicle production.
“Competition is coming and they are responding with price cuts,” said Thomas Hayes, chairman 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 both 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 percent and 20 percent, Reuters calculations showed, with the basic Model Y now costing $52,990, down from $65,990.
Those cuts are before a $7,500 US federal tax credit that took effect for many electric vehicles on Jan 1 that could bring discounts to more than 30 percent.
Tesla also cut prices for its Model X luxury crossover SUV and Model S sedan in the US.
Discounts kick in more subsidies
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 percent to almost 17 percent 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.
Tesla fans and customers complained the price cuts disadvantaged those who had recently bought a vehicle
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.
The move broadens the vehicles in Tesla's line-up eligible for the 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 that a Model Y, after tax credits, could be $18,000 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.
Wedbush analyst Dan Ives said the move could boost global deliveries by 12 percent to 15 percent 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 on Friday.
In China, where Tesla cut prices last week by 6-13.5 percent, owners protested at delivery centers, calling for compensation.
For 2021, the US and China combined had accounted for about 75 percent 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 to follow suit in what could become a price war in the largest single EV market.