Tesla has become cheaper than ever with the price of Tesla Model Y costing less than the average vehicle. The new strategy of low cost is eating into Tesla’s profits, but it seems to be working. Musk’s Tesla is making big moves into the mass market this year.
Though the lower price strategy did impact the profit margins in the first quarter, this has helped in boosting sales volume.
EV price war
This Tesla’s price war is spilling over out on to the electric vehicle market as Elon Musk’s Tesla continues to cut prices.
Musk’s Tesla has dropped the prices 6 times since the start of the year, entering a price war with other car brands like Ford and GM.
So far, Tesla’s pricing strategy has been seen through the lens of the EV market and Musk’s efforts to protect Tesla’s spot as the number one seller of electric vehicles in the US, but now Tesla’s vehicles are priced more comparably with the entire vehicle market.
For example, after Tesla’s latest price reductions last week in the U.S., the Model Y now starts at $46,990. Add on the $7,500 EV tax credit, and you can now purchase a Model Y for around $42,500. That’s about $5,200 cheaper than the average price paid for any vehicle in the US in March, according to car shopping website Edmunds.
To make things even worse for competitors, all Model 3 and Model Y vehicles now qualify for the full tax credit, too.
“For so long people have seen price and infrastructure as the limiting factors for buying an EV, and Tesla has just blown that out of the water,” Martin French, managing director at consultancy Berylls, said in an interview. “They’ve just said, ‘we can offer you a vehicle at about $40,000, and by the way, you can use our Supercharger network.'”
In addition to price reductions, Tesla has been dangling special offers like free charging for new customers.
It’s the latest move for Tesla into the mass market this year. Musk has said the company is aiming to build 2 million vehicles this year, doubling 2022 production.
Tesla’s sales strategy
Tesla’s sales were up in Q1 but margins were smaller. Tesla went into 2023 with inflated inventory, completely opposite problem than most of its competitors were facing. Musk spun this problem into an advantage by reducing the pricing were as the others EV companies were still charging well above sticker price on dealer lots.
Musk’s strategy for boosting demand seem to work in the first quarter with Tesla’s price cuts, reporting a 36% increase in deliveries during that period.
The price cut move had some analysts and investors worried that Tesla could forgo its industry leading profit margins for bigger sales volumes. Tesla reported lower margins for the first quarter proving their fears to be true.
“We’ve taken the view that pushing for higher volumes and a larger fleet is the right choice here versus a lower volume and higher margin,” Musk told analysts as they grilled him and other executives about the price reduction.
It seems as though, he has succeeded in calming their nerves what with Tesla shares up more than 131% since January 1, easily outpacing the benchmark S&P 500 index.
