Tesla is finally getting affordable. It’s a sign that Elon Musk’s back is against the wall. If you’re in the market for a brand new Tesla, now might be your moment to make a splash: Elon Musk just made it a whole lot cheaper to join the electric vehicle club.
The EV firm has cut prices of some of its top models, including the Model Y SUV and Model 3, by up to 20% in the US and Europe, according to changes in vehicle listing prices on its site on Thursday.
Although the cars are relatively expensive, this is a big draw thanks to the premium pricing. And it’s a sign that Tesla is in defense mode after months of gradually increasing prices for its vehicles. The price drop comes on the heels of the company missing market estimates for delivery last year, which has brought its $1 trillion peak market capitalization down to less than $400 billion amid an economic downturn.
Elon Musk has previously talked about making Tesla more affordable, it is more likely that his hand has been forced by circumstances. Since taking over on Twitter, Musk has increasingly used the platform to make clear that he is unhappy with the way the Fed is aggressively raising interest rates to bring inflation back to the 2% target.
Elon Musk tweeted in November that “the Fed needs to cut interest rates immediately” over concerns that “they are massively underestimating the likelihood of a severe recession.” Rising interest rates have had an impact on Tesla. For the same reasons investors soured on their holdings, tech stocks generally declined. Speculative companies speculating in the future are less attractive to investors right now than safe-haven value stocks such as commodities.
Rethinking has begun about whether Tesla should be priced as a generic car company or a tech company, the latter traditionally enjoying a significant markup on the promise of an industry-shaking innovation . The hike in rates is forcing investors to seek clarity on this. The interest rate hike also increased the cost of financing Tesla’s purchase, making the switch harder for consumers already suffering from inflation.
In response to a Twitter thread about consumers taking out loans before interest rates went up – and now facing faster payments – Elon Musk tweeted that this could potentially create the biggest financial crisis ever. Could In a research note, Dan Ives, senior equity research analyst at Weinbush Securities, said it’s no secret that some cracks in Tesla demand are starting to appear as the global recession of the economy that began in 2022 continues into 2023.
Soft demand for the global EV market is a bigger driver of price cuts than interest rate hikes, Simon Moores, CEO of Benchmark Mineral Intelligence, a price reporting agency for the EV supply chain, told Insider. With backlog orders significantly reduced for Tesla when it comes to demand, Moores said the price cut is a good way to grow the immediate and medium-term sales pipeline.
Tesla isn’t the only name in the EV game after all. After years of being the only real players in the industry, traditional automakers are starting to roll out rival offerings to entice consumers to switch from gas. Tesla plans to sell 65.4% of new vehicles in the US from January to September in 2022. According to data from an Experian report on the automotive industry published in December, EV registrations were down from 68.2% of the total in 2021 and 79.4% in 2020.
This trend is only set to continue, which means Tesla needs to take competition and affordability seriously. IG chief market analyst Chris Beauchamp said the price cut repeats a similar move Tesla made in China, where the cut earlier this month sparked protests.
The price cut will definitely be welcomed by the consumers. The Model Y’s cheaper price in the US qualifies it for Inflation Reduction Act incentives — tax credits proposed by the US government aimed at making EVs more affordable for potential buyers, Moores said.
While the cut has hurt Tesla’s share price in the short term, it’s a move the firm can currently afford: rapid global expansion to put up gigafactories in places like Berlin and Shanghai has forced it to be flexible and Gave more space Is.
Wedbush’s Ives estimates that all these price cuts could increase demand globally by 12-15% in 2023. It shows that Tesla is ready to be aggressive. He said it’s a clear shot across the bow at European automakers and the American giant that Tesla isn’t going to play nice with an EV price war in the sandbox.