Competition makes you do things which you normally won’t want to do as Tesla is now cutting prices in the United States and Europe again, according to the electric carmakers’ website on Thursday night.
The move is a result of estimates that Tesla’s share in the US market share will have be less than 20 percent by 2025 with the introduction of cheaper models by the rivals.
According to a report prepared by S&P Global Mobility, Tesla’s share of new registered electric vehicles in the US stood at 65 percent in the third quarter, representing down from 71 percent last year and 79 percent in 2020.
Tesla no more enjoys a monopoly as fully electric models with equal or better technology are now available in a price range below $50,000. Its entry-level Model 3 starts at about $48,200 with shipping fees, but the vehicles typically retail for higher prices with options.
“Given that consumer choice and consumer interest in EVs are growing, Tesla’s ability to retain a dominant market share will be challenged going forward,” the report said.
In Europe, Tesla is going to cut prices for Model 3 and Model Y vehicles in Austria, France, Germany, the Netherlands, Norway, Switzerland and the U.K.
In Germany, Tesla cut prices on the Model 3 and the Model Y from 1 percent to around 17 percent, depending on the configuration. Tesla’s Model 3 was the bestselling electric vehicle in Germany in December 2022, followed by the Model Y as the company beat out Volkswagen and its popular electric vehicle the ID.4. Tesla’s Model 3 at its discounted price is comparable to Volkswagen’s entry level electric car, the ID.3.
Moreover, the price of a new Tesla Model 3 in the US has dropped between 6 percent and 14 percent with around 19 percent cut for Model Y, 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 US, 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.
However, the move in the US may help Tesla qualify for more federal EV (electric vehicle) tax credits, and stoke sales volume here and abroad, after competition and interest rates increased.
The US 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.
It 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 US 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, Tesla reported deliveries of 405,278 vehicles and production of 439,701 vehicles in the fourth quarter of 2022. The company had been telling shareholders to expect 50 percent 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 US 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.
It means 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.”
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.