Tesla Inc TSLA.O cut global prices of its electric vehicles by up to 20 percent, extending aggressive discounting efforts and challenging rivals after missing Wall Street’s 2022 delivery forecasts.
The move marks a reversal from the automaker’s strategy over the past two years, when orders for new vehicles outstripped supply. It comes after CEO Elon Musk warned that the prospect of a recession and higher interest rates meant he could cut prices to support growth at the expense of profits.
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Last year, Musk acknowledged that prices had become “uncomfortably high” and could hurt demand. Shares ended down 0.9% after falling as much as 6.4% on Friday. Last year, Tesla shares had their worst year since the company’s inception due to slowing growth in China and Musk’s Twitter distraction.
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Tesla cut prices in the United States, Europe, the Middle East and Africa, following a series of cuts last week in Asia, in what analysts saw as a clear blow to both cash-bleeding smaller rivals and older carmakers , which are aggressively ramping up electric vehicle production.
“Competition is coming and they’re responding with price cuts,” said Thomas Hayes, chairman and managing member of Great Hill Capital.
Discounts may make EVs affordable to people who were previously shut out of the market. US and French buyers could take advantage of both rebates and federal tax credits available in both countries for certain electric vehicle purchases.
The U.S. price cut for Tesla’s global best-sellers, the Model 3 sedan and the Model Y crossover SUV, was between 6 percent and 20 percent, Reuters calculations showed, with the base Model Y now costing $52,990, down from $65,990.
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These cuts are ahead of a $7,500 US federal tax credit that went into effect for many electric vehicles on Jan. 1, which could lead to discounts of up to 30 percent.
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Tesla also cut prices on its Model X luxury crossover SUV and Model S sedan in the United States.
Discounts lead to more subsidies in France, US
A spokesman for Tesla Germany said lower cost inflation was also a factor in reducing prices in Europe’s largest market, without specifying which costs had fallen.
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In Germany, Tesla cut prices by about 1% to almost 17% on the Model 3 and Model Y. The best-selling Model Y will now cost 44,890 euros ($48,499), which is 9,100 euros less.
It also cut prices in Austria, Switzerland and France.
In France, customers buying a Model 3 for €44,990 will now get a further discount through a government subsidy of €5,000 under an EV scheme with a threshold of €47,000.
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The move expands Tesla’s lineup of vehicles eligible for a tax credit from the Biden administration.
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Before the price cuts, the five-seat version of the Model Y didn’t qualify, which Musk called “confused.” After the price cut, the long-haul version of the Model Y will qualify.
Deutsche Bank estimated that the Model Y, after tax credits, could be $18,000 less than the rival Ford Mustang Mach E. Gross profit margins on Tesla cars, which are among the highest in the industry, will fall by 3 percentage points in 2023 from 2022, it estimates, but Tesla’s “bold offensive move” has ensured growth and put rivals in a big bind, the broker said.
While Tesla’s shares fell, the shares of competitors were hit even harder.
U.S. automakers General Motors Co GM.N and Ford Motor Co FN fell 4.5 percent and 6 percent respectively, making them among the biggest losers on the S&P 500 for the broad market, while Europe’s Stellantis NV STLA.MI fell by 3.7% and Volkswagen AG VOWG_p.DE fell by 3.6%.
Wedbush analyst Dan Ives said the move could boost global shipments by 12% to 15% this year and shows Musk is responding to growing competition.
Tesla fans and customers have complained that the price cuts put those who have recently bought a car at a disadvantage.
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Greg Woodfill of Seattle, who bought a Model Y in December, considered waiting until the new year to get the U.S. subsidy, but was enticed by a discount at the time of $3,750.
The Tesla fan, who previously owned a Model 3, said he was disappointed by Musk’s antics but decided to buy the Model Y because he loves Tesla products.
“It’s a gut punch, to be honest,” he told Reuters on Friday, adding that he felt it was unfair that Tesla had tried to boost sales in the fourth quarter with discounts, only to cut prices further this month later.
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“If they knew they were going to cut the price this much, they should have just done it in December.”
In China, where Tesla cut prices last week by 6-13.5%, owners protested at delivery centers calling for compensation.
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For 2021, the United States and China combined accounted for about 75% of Tesla’s sales, but they are growing in Europe.
Tesla cut prices in China and other Asian markets last week, which analysts said would boost demand and increase pressure on rivals including BYD 002594.SZ to follow suit in what could become a price war on the most the large single EV market.
($1 = 0.9224 EUR)
(Reporting by Hyunjoo Jin in Seoul, Zhang Yan in Shanghai and Victoria Waldersee in Berlin Additional reporting by Bansari Mayur Kamdar in Bengaluru, Samuel Indyk in London and Gertrude Chavez in New York; Writing by Kevin Krolicki and Josephine Mason Editing by Peter Henderson, Alexander Smith and Matthew Lewis)
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