Tesla made a significant announcement on Thursday, implementing substantial price cuts across its entire model range. The reductions range from $3,000 (for the base-grade Model 3) to $13,000 (for the base Model Y).
Traditionally, Tesla has been known for its infrequent price cuts and lack of discounts. However, these recent across-the-board reductions come after a last-minute 2022 program that provided $3,750 rebates for Model 3 and Model Y deliveries in December.
They also come in the wake of a tumultuous year for the automaker, during which it surpassed BMW as the top-selling luxury brand in the US but experienced a 64% decline in stock value.
The challenges stemmed from increased competition, weakened demand in China, and the negative impact of CEO Elon Musk’s controversial Twitter activity on Tesla’s reputation among investors and customers.
The price cuts bring both advantages and disadvantages for Tesla enthusiasts. On the positive side, they reverse most of the price increases from the past two years and enable the Model 3 and Model Y to benefit from post-Inflation Reduction Act tax credits.
Additionally, they enhance the competitiveness of all four Tesla models against a growing number of newer competitors. However, the lower prices may significantly impact resale values, which have already been declining for months, and could potentially upset existing customers.
Despite Tesla’s strong performance in 2022, with 522,444 vehicles sold in the U.S. (a 48% increase from 2021) according to data from Motor Intelligence, demand started to weaken in the second half of the year, initially in China and later in the U.S.
China serves as Tesla’s largest export market, and the company manufactures the Model 3 and Model Y in Shanghai specifically for that market. However, in China, electric vehicles (EVs) account for 35% of vehicle sales, a significantly higher percentage compared to the U.S. where it is only 6%.
As a result, the Model 3 and Model Y face fierce competition from numerous direct rivals in China. Moreover, China ended its 13-year EV subsidy program at the end of 2022, leading to a decline in Tesla sales by 42% last year, while domestic Chinese companies like BYD and XPeng experienced increased sales due to subsidized EV offerings.
As sales declined, Tesla responded by implementing price reductions on its Chinese-built vehicles, with cuts of up to 9.4% in October and an additional reduction of up to 13.5% last week.
These price adjustments sparked protests from disgruntled customers at Tesla stores in China who sought compensation. However, the price cuts also prompted a retaliatory response from at least one Chinese company, Aito (a subsidiary of Huawei), which also reduced prices in response to Tesla’s actions.
Lower prices on Teslas are expected to enhance their appeal in China, especially following the end of subsidies. Similar strategies are being employed for price cuts in the United States, driven by factors such as declining demand, heightened competition, and modifications in government-backed incentives.
Tesla recently released its production and delivery figures for Q4 2022, revealing that it manufactured 439,701 vehicles globally but only managed to deliver 405,278. In light of these numbers, the rebate offered in December was not unexpected and has historical precedence.
In the past, automakers like Chrysler Corporation have utilized rebates, such as in 1975 when they offered discounts of up to 14% of the manufacturer’s suggested retail price to address an excess inventory of unsold vehicles. While rebates have been a common strategy to boost sales or clear inventory, significant price reductions are relatively uncommon.
Source : bbc.com