Tesla extends price cuts to U.S., Europe to drive demand
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[January 13, 2023] (Reuters)
- Tesla has slashed prices on its electric vehicles in the United States
and Europe by as much as 20%, extending a strategy of aggressive
discounting after missing Wall Street estimates for 2022 deliveries.
The move, which prompted a 4.5% fall in Tesla's shares in pre-market
U.S. trade, came after CEO Elon Musk warned that the prospect of
recession and higher interest rates meant it could lower prices to
sustain volume growth at the expense of profit.
The lower pricing across Tesla's major markets marks a reversal from the
strategy the automaker had pursued through much of 2021 and 2022 when
orders for new vehicles exceeded supply. Musk acknowledged last year
that prices had become "embarrassingly high" and could hurt demand.
More stable cost inflation was also a factor in reducing prices, said a
spokesperson for Tesla Germany, confirming price cuts in its top
European market.
The U.S. price cuts, announced late Thursday on its global top-sellers
the Model 3 sedan and Model Y crossover SUV, were between 6% and 20%,
Reuters calculations showed.
The basic version of its Model Y now costs $52,990, down from $65,990
previously.
That is before an up to $7,500 federal tax credit that took effect for
many electric vehicle models at the start of January.
Following is a table of the price cuts by model in Germany and the
United States:
Tesla also cut prices for its Model X luxury crossover SUV and Model S
sedan in the United States.
In Germany, it cut prices on the Model 3 and the Model Y by between
about 1% and almost 17% depending on the configuration. It also cut
prices in Austria, Switzerland and France.
For a U.S. buyer of the long-range Model Y, the new Tesla price combined
with the U.S. subsidy amounts to a discount of 31%. In addition, the
Tesla move broadened the vehicles in its line-up eligible for the Biden
administration tax credit.
Before the price cut, the five-seat version of the Model Y had been
ineligible for that credit, a designation Musk called "messed up". After
the price cut, the long-range version of the Model Y will qualify.
The cuts may make EV cars affordable to people who may have been
previously priced out of the market.
In France, customers buying the Model 3 for 44,990 euros ($48,773) will
now get a further price reduction through a government subsidy of 5,000
euros. The threshold for the EV scheme is 47,000.
VOLUME VS MARGINS
"This should really boost 2023 (Tesla) volumes," Gary Black, a Tesla
investor who has remained bullish on the company and its prospects
through the recent, sharp share price decline, said in a tweet. "It's
the right move."
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A new Tesla Model 3 is shown at a
delivery center on the last day of the company's third quarter, in
San Diego, California, September 30, 2019. REUTERS/Mike Blake
Still shares in U.S. pre-market trading were lower, as investors
worried the move might erode bumper margins, particularly as
competition intensifies.
"Tesla is an outlier because it's still got eye watering valuations
when it comes to the number of cars that it actually sells. But
ultimately there are all the other providers that sell a hell of a
lot more cars overall," said Michael Hewson, chief market analyst at
CMC Markets UK.
Some users on Tesla fan forums online also complained the price cuts
disadvantaged those who had recently bought their vehicle, leaving
them with a lower second-hand value.
"Just reducing 10,000 euros like that - definitely makes you feel
that you just paid far too much," one user wrote on a 'Tesla Drivers
and Friends' forum.
In China, where Tesla cut prices last week by 6-13.5%, owners
protested at delivery centres, calling for compensation.
Before the cuts, Tesla inventory in the United States, as tracked by
models its website shows as immediately available, had been trending
higher. Prices on used Tesla models had also been dropping,
increasing pressure to adjust new-car prices.
For 2021, the United States and China combined had accounted for
about 75% of Tesla sales, although it has been growing sales in
Europe, where its Berlin plant has been ramping up output.
SALES LEADERSHIP
Tesla cut prices in China and other Asian markets last week in its
first major move since appointing its lead executive for China and
Asia, Tom Zhu, to oversee U.S. output and sales.
Analysts had said the Chinese price cuts would boost demand and
increase pressure on its rivals there, including BYD, to follow suit
in what could become a price war in the largest single market for
electric vehicles.
Tesla's Model 3 was the best-selling electric vehicle in Germany
last month, followed by the Model Y, beating Volkswagen's
all-electric ID.4. Volkswagen recently raised the price of its
entry-level ID.3, putting it at parity with the now-discounted Model
3.
Tesla missed Wall Street estimates for fourth quarter deliveries.
Full year growth in deliveries was 40% - also short of Musk's own
forecast of 50%.
($1 = 0.9224 euros)
(Reporting by Zhang Yan in Shanghai, Hyunjoo Jin in Seoul, Victoria
Waldersee in Berlin; Additional reporting by Bansari Mayur Kamdar in
Bangaluru; Writing by Kevin Krolicki in Singapore and Josephine
Mason in London; Editing by Lincoln Feast, Kenneth Maxwell, Mark
Potter and Alexander Smith)
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