February 2, 2023

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Tesla’s big price cuts mean ‘a big shift in the EV market’

Can Tesla remain the leader in the advanced electric vehicle market it effectively created?

This question has plagued EV buyers, investors, analysts, industry watchers, and Elon Musk Stans for months. That was especially the case as questions about demand in China and the US — not to mention the Twitter drama — seemed to cast a shadow over the electric carmaker’s track record.

On Thursday night, Tesla revealed its answer to that problem, at least for now: steep price cuts across its vehicle lineup, in some cases as much as 30 percent when the latest EV tax credits are also applied.

Can Tesla remain the leader in the advanced electric vehicle market it effectively created?

What’s more, some of the price cuts are now making the cars eligible for those tax breaks in the first place.

Analysts speaking to The Verge on Friday underscored the importance of these cuts, saying they could have a profound impact not only on the Tesla brand but also on the increasingly competitive EV game. Some even said this could be the first shot in a looming EV “price war” even as automakers struggle to source enough materials to put these cars on the road en masse.

“Tesla’s recent price cuts reflect a major shift in the electric vehicle market,” said Jessica Caldwell, executive director of insights at car buying website Edmunds. “A wave of new EV options will come out in 2023, but as production will be limited for most manufacturers, Tesla is positioning itself to attract consumers who are unwilling to wait or who are concerned about EV technology are indecisive, enticing them to do so All buyers respond to one thing – a deal.”

Potential Tesla customers will likely be very pleased with Thursday’s news. For example, the Model 3’s horsepower dropped from nearly $63,000 to $54,000 before tax credits. Model Y performance is down from nearly $70,000 to about $57,000, also before the tax credits.

“Tesla’s recent price cuts reflect a major shift in the electric vehicle market”

“The changes of particular note are for the Model Y, which has seen MSRPs drop by as much as $13,000 on some configurations, truly an amazing discount rarely seen in this industry,” said Robby DeGraff, analyst at the automotive industry Research company AutoPacific. “Additionally, these lower prices mean that certain configurations of the Model 3 and Model Y, routinely two of the best-selling EVs in the country, should now be eligible for further rebates of up to $7,500 thanks to the revised federal EV Tax Credits. ”

Tesla’s price cuts have brought the automaker’s offering well below that of many competitors. The Model 3 Standard Range in particular is now much closer to the long promised but never realized $35,000 Model 3 than ever before.

The price cuts follow a similar move in China last week. There, Tesla has slashed its prices by as much as 13 percent, the third such move in recent months, as it competes with domestic automakers like BYD for EV supremacy.

In the US, the move has also been timed to coincide with changes to the EV tax credit under the Inflation Reduction Act. This legislation provides incentives for tax breaks for electric vehicles assembled in North America and batteries assembled there.

Caldwell said the cuts, aimed at protecting Tesla’s market share, also represent the transition from a “market anomaly” to an established car company. The average new price for electric vehicles at the end of 2022 was around 65,000 US dollars and thus even higher than the recently astronomical new prices for vehicles with internal combustion engines.

Tesla’s price cuts have brought the automaker’s offering well below that of many competitors.

This is a way to stay one step ahead of the competition. Caldwell said that for a long time, Tesla was virtually the only EV maker in the US that didn’t make “compliance vehicles” — expensive, converted, short-range EVs made to meet local regulations. “But now Tesla needs to be competitive in several areas, including price, design and performance,” she said.

This will prove increasingly difficult in 2023. This year, all the major automakers and several startups are jointly planning a new EV onslaught, almost all of which boast an impressive range of vehicles, advanced features and an unprecedented level of software integration.

While Tesla’s vehicle offering is more than competitive in these areas, it’s getting old; this year’s Model S is now 10 years old, while the best-selling Model 3 is six years old. And Tesla seems to have few well-known brand new products in the immediate pipeline aside from the long-delayed Cybertruck and Roadster.

At the same time, as another Edmunds analyst told The Verge in December, discounts are often a hallmark of lower-end, more budget-friendly brands; Nissan in particular has been struggling with the effects of this strategy for years.

“Tesla needs to be competitive in several areas, including price, design and performance”

“Like mainstream automakers, Tesla will have to deal with what these price cuts will mean for its residual value and brand image,” Caldwell said.

Additionally, many existing Tesla customers — including those who paid more for the same vehicles they bought in December — appear unhappy with the move, concerned about the impact on their cars’ resale value. Many took to social media Friday, including Twitter, the platform Musk personally owns, to complain or ask for discounts on other services.

“However, there seems to be some drama going on, although before these dramatic price cuts are announced things could get ugly among buyers who just bought these very same Tesla vehicles at a higher cost, and Musk may have to find a way to put out those fires,” DeGraff said.

Meanwhile, Tesla owners in China have taken to the streets to protest last weekend’s and this week’s price cuts, saying the decision has negatively impacted their resale value. While it’s unlikely customers in the US and Europe will go that far, one group of people was quite happy with that decision: Tesla’s long-term investors.

“The initial reaction to these cuts will, of course, be negative [Wall] First of all, we believe this was the right strategic poker move by Musk and his company at the right time,” said Dan Ives, a tech analyst at Wedbush Securities who is optimistic about Tesla but very critical of Musk’s actions in recent months.

“Overall, we believe these price cuts could boost global demand/supplies by 12-15 percent in 2023 and show that Tesla and Musk are going on the ‘offensive’ to boost demand in a slowing environment,” Ives said. “This is a clear shot across the bows of European automakers and US stars (GM and Ford) that Tesla will not play well in the sandbox in an EV price war that is now underway.”

As with most deals in life, there seems to be at least one catch. While the new rules surrounding the EV tax credits are nebulous, evolving, and at times deeply confusing, many observers have pointed out that the full benefit of these rebates — the price cuts and the tax credits combined — depend on whether you get a Tesla before 31 . March. That’s when the battery sourcing rules will change.

Barring changes to the tax credits, which could very likely be the case, those deals depend on Tesla’s ability to deliver cars to meet the demand that’s built up over the past 24 hours.