Tesla is extending price cuts to the US and Europe to drive demand

Jan 13 (Reuters) – Tesla (TSLA.O) It slashed prices of its electric cars in the US and Europe by up to 20%, extending its deep discount strategy after it missed Wall Street estimates for 2022 delivery.

The move, which led to a 4.5% drop in Tesla shares in premarket US trading, came after CEO Elon Musk warned that a possible recession and rising interest rates mean he could cut prices to sustain volume growth at the expense of earnings.

Lower prices across Tesla’s key markets are a reversal of the strategy the automaker has pursued through most of 2021 and 2022 when orders for new vehicles outpaced supply. Musk admitted last year that prices had become “shamefully high” and could hurt demand.

More stable cost inflation has also been a factor in lowering prices, a spokesman for Tesla Germany said, confirming price cuts in Europe’s largest market.

Reuters calculations showed that price cuts in the US, announced late Thursday on top global sellers of the Model 3 sedan and Model Y crossover, ranged between 6% and 20%.

The base version of its Model Y now costs $52,990, down from $65,990 previously.

That’s before up to the $7,500 federal tax credit that went into effect for several electric vehicle models at the beginning of January.

Below is a table of price reductions by model in Germany and the United States:

Tesla also lowered the prices of its Model X luxury crossover SUV and Model S sedan in the United States.

In Germany, it has cut prices on the Model 3 and Model Y by approximately 1% to 17% depending on the configuration. Prices have also been reduced in Austria, Switzerland and France.

For a US buyer of the long-running Model Y, the new Tesla price combined with the US subsidy amounts to a 31% discount. Additionally, the Tesla movement has expanded the vehicles in its lineup that qualify for a Biden administration tax credit.

Prior to the price cut, the five-seat version of the Model Y was ineligible for this credit, which Musk called “messed up.” After the price cut, the long-running version will qualify as the Model Y.

The discounts could make EVs more affordable for people who may previously have been priced out of the market.

In France, customers who buy the Model 3 for €44,990 ($48,773) will get a further price reduction with a €5,000 government subsidy. The threshold for the EV chart is 47,000.

Size vs margins

“This should really drive up Tesla sales volumes for 2023,” Gary Black, a Tesla investor who has remained bullish about the company and its prospects through a recent sharp drop in share prices, said in a tweet. “It’s the right move.”

Shares are still in pre-market trading in the US lower, as investors worried the move could erode bumper profit margins, especially as competition heats up.

said Michael Hewson, Chief Market Analyst at CMC Markets UK.

Some users on online Tesla fan forums have also complained that the price cuts hurt those who bought their cars more recently, leaving them with a lower used value.

“Just dropping €10,000 like that – definitely makes you feel like you paid way too much,” one user wrote on the Tesla Drivers and Friends forum.

In China, where Tesla cut prices last week by 6-13.5%, owners protested at delivery centers, demanding compensation.

Before the cuts, Tesla’s U.S. inventory, as per the models its website shows available immediately, was trending higher. The prices of used Tesla models have also fallen, adding pressure to adjust the prices of new cars.

For 2021, the US and China together accounted for about 75% of Tesla’s sales, though sales have increased in Europe, where its Berlin plant is ramping up production.

Sales leadership

Tesla cut prices in China and other Asian markets last week in its first major move since the appointment of its chief executive officer for China and Asia, Tom Chu, to oversee production and sales in the United States.

Analysts said China’s price cuts will boost demand and put more pressure on its competitors there, including BYD (002594.SZ)to follow suit in what could become a price war in the largest single market for electric vehicles.

The Tesla Model 3 was the best-selling electric car in Germany last month, followed by the Model Y, beating Volkswagen. (VOWG_p.DE) ID.4 fully electric. Volkswagen recently raised the price of its entry-level ID 3, putting it on par with the now-discounted Model 3.

Tesla missed Wall Street’s estimates for fourth-quarter deliveries. Growth in deliveries for the full year was 40% — also below Musk’s own forecast of 50%.

($1 = 0.9224 euros)

Additional reporting by Zhang Yan in Shanghai, Hyunju-jin in Seoul, and Victoria Waldersee in Berlin; Additional reporting by Bansari Mayur Kamdar in Bengaluru. Written by Kevin Krolicki in Singapore and Josephine Mason in London. Editing by Lincoln Feast, Kenneth Maxwell, Mark Potter and Alexander Smith

Our standards: Thomson Reuters Trust Principles.