With its sales sluggish and its share price plummeting, Tesla slashed prices Friday on several versions of its electric cars, making some of its models eligible for a new federal tax credit that could help spur buyer interest.
The company has cut prices of nearly 20% in the US on some versions of the Model Y SUV, its biggest seller. This cut will make more Model Y versions eligible for the $7,500 electric vehicle tax credit that will be available through March. Tesla also lowered the base price of the Model 3, its least expensive model, by about 6%.
Far from satisfying investors, sharp price cuts sent Tesla shares down nearly 3% at midday Friday. Since the beginning of last year, the stock has fallen more than 65%. Many investors fear Tesla’s sales will continue to slow and have grown concerned about CEO Elon Musk’s erratic behavior and the distraction caused by his $44 billion purchase of Twitter.
“I think the real driver of all this is the drop in demand for Teslas,” said Sam Aboulsamid, an analyst at Guidehouse Research e-Mobility.
Itay Michaeli, an industry analyst at Citi, wrote in a note to investors that Tesla appears to be prioritizing sales volume over price — a strategy that could pressure its profit margins, at least in the near term.
Messages left Friday for comment from Tesla.
Meanwhile, Tesla faces stiff competition from other automakers in the United States and globally for years to come. Last year in the US, total electric vehicle sales were up nearly 65% from 2021. Automakers sold 47 electric vehicle models. Only four were from Tesla. S&P Global Mobility expects the number of electric vehicle models to increase to 159 by 2025.
And as overall sales of electric vehicles rise, Tesla’s share of the US market declines. From 2018 to 2020, Tesla accounted for about 80% of the electric vehicle market. By 2021, that number had fallen to 71%, and has continued to decline, according to registration data compiled by S&P.
However, Tesla sales in the US rose 40% last year, and S&P expects them to continue to rise as sales of electric vehicles increase steadily.
Even with US tax breaks, electric vehicles remain very expensive compared to gas-powered vehicles, largely due to the higher cost of batteries. In addition, higher loan rates and more expensive raw materials drive up costs for buyers and could limit electric vehicle sales, both for Tesla and its competitors.
With Tesla’s price cuts Friday, its Model Y Performance, previously priced at around $70,000, starts at just under $57,000. The starting price of the Model 3, Tesla’s lowest-priced car, has been slashed to just under $44,000 from $47,000.
Aboul Samed noted that the company’s decision to drop the base price of the Model 3, which was already eligible for the federal tax credit, is a clear sign of weak demand.
Abul Samed added that Tesla has added two huge factories in Austin, Texas and Berlin that are operating at only a fraction of their production capacities, “which undoubtedly costs them dearly.”
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