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Tesla’s big price cut means “a big shift in the electric car market”




Can Tesla remain a leader in the modern electric car market it has effectively created?

That question has been on the minds of electric car buyers, investors, analysts, industry watchers and Elon Musk stalwarts for months now. That’s especially been 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 success story.

On Thursday night, Tesla revealed the answer to that problem, at least for now: deep price cuts across its lineup of cars, in some cases amounting to as much as a 30 percent discount when the latest tax credits for electric cars are also applied.

Can Tesla remain a leader in the modern electric car market it has effectively created?

Also, some of the price cuts now qualify the cars for these tax breaks in the first place.

Analysts who spoke with The Verge on Friday underscored the significance of those cuts, saying they could have profound effects not just on Tesla’s brand, but 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 latest price cut reflects a major shift in the electric car market,” said Jessica Caldwell, managing director of insights at car-buying website Edmunds. “By 2023, a wave of new EV options will enter the market, but given that production will be limited for most manufacturers, Tesla is positioning itself to acquire consumers who are unwilling to wait or who may be on the fence about EVs technology by luring them with the one thing all buyers respond to – a deal.”

Potential Tesla customers will likely be very pleased with Thursday’s news. The Model 3 Performance, for example, dropped from nearly $63,000 to $54,000 before any tax credits. The Model Y Performance has dropped from nearly $70,000 to around $57,000, even before the tax credits.

“Tesla’s latest price cut reflects a major shift in the electric car market”

“The changes of particular note are for the Model Y, with some configurations seeing their MSRPs drop by as much as $13,000, truly a staggering discount that is rare to see happen in this industry,” said Robby DeGraff, an analyst in the automotive industry. research firm AutoPacific. “Additionally, these more affordable prices mean that certain configurations of the Model 3 and Model Y, routinely two of the nation’s best-selling electric vehicles, should now be eligible for additional rebates of up to $7,500 thanks to the revised federal electric vehicle tax credits. “

Tesla’s price cut puts the car manufacturer’s offer well below several competitors. The Model 3 Standard Range in particular is now much closer to the long-promised-but-quite-never-materialized $35,000 Model 3 than ever before.

The price cuts follow a similar move in China last week. There, Tesla cut prices by as much as 13 percent, the third such move in recent months as it battles for EV supremacy with homegrown automakers such as BYD.

In the US, the move was also timed to coincide with changes to tax credits for electric cars under the Inflation Reduction Act. This legislation incentivizes tax breaks for electric vehicles assembled in North America, as well as batteries assembled here as well.

Caldwell said the cuts, which are aimed at protecting Tesla’s market share, also represent the transition from a “market anomaly” to a mainstream car company. The average price of new electric cars was around $65,000 by the end of 2022, even higher than the also astronomical new prices of internal combustion cars recently.

Tesla’s price cut puts the car manufacturer’s offer well below several competitors.

It’s a way to stay ahead of the competition. Caldwell said that for a long time in the U.S., Tesla was actually the only electric car maker that didn’t make “compliance vehicles” — expensive, low-range converted electric vehicles made to satisfy local regulations. “But now Tesla needs to be competitive in several areas, including price, design and performance,” she said.

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

While Tesla’s car lineup is more than competitive in these areas, it’s one that’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 appears to have few known all-new products in its immediate pipeline besides the long-delayed Cybertruck and Roadster.

At the same time, as another Edmunds analyst shared The Verge in December, discounts are often a hallmark of less premium, more budget-friendly brands; Nissan in particular has struggled with the effects of this strategy for years.

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

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

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

“However, there seems to be some drama unfolding among shoppers who just bought these exact Tesla vehicles at higher costs, before these dramatic price drops were announced, things could get ugly and Musk may have to figure out a way to put out those fires,” DeGraff said.

Meanwhile, Tesla owners in China have taken to the streets to protest the price cuts over the past weekend and into this week, saying the decision has negatively affected their resale values. While customers in the US and Europe are unlikely to go that far, one group of people found themselves quite happy with this decision: Tesla’s long-term investors.

“While the initial reaction to these cuts will naturally be negative [Wall] Street initially, we think this was the right strategic poker move by Musk and the company at the right time, said Dan Ives, a technical analyst at Wedbush Securities who is bullish on Tesla but one who has been highly critical of Musk’s actions in the last. months.

“We all think these price cuts could stimulate demand/supplies by 12 percent to 15 percent globally in 2023, showing that Tesla and Musk are going on the ‘offensive’ to stimulate demand against a softer backdrop,” Ives said. “This is a clear shot for European automakers and American stalwarts (GM and Ford) that Tesla is not going to play nice in the sandbox with a price war on electric cars now.”

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 tax credits combined — depends on receiving a Tesla before March 31. That’s when the rules around battery purchases are set to change.

Unless something changes with the tax credits, and it very likely will, these deals depend on Tesla’s ability to deliver cars to meet the demand that has arisen in the last 24 hours.



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