Tesla has slashed the prices of its cars by as much as a fifth in the US and Europe as it struggles with slowing demand and increasing competition.
The US carmaker increased its sales by 40% to 1.3 million in 2022, making it the world’s largest maker of purely battery-powered electric cars, ahead of China’s BYD. However, investors have begun to worry that revenue growth will be limited by the economic slowdown in some of its key markets.
Automakers around the world are ramping up production of electric vehicles to comply with internal combustion engine bans that will come into force in the UK and Europe at the end of the decade. Tesla faces competition from new all-electric competitors like Lucid, Fisker, and Polestar, as well as electric cars from long-established brands like Volkswagen, General Motors, and Hyundai.
After a period when new car supply exceeded demand due to a supply chain disruption related to the coronavirus pandemic, automakers’ attention is turning to the possibility of a demand slump.
The concerns have contributed to the collapse in Tesla’s stock market valuation since the peak of investor excitement in 2021. Tesla’s market value has fallen by more than two-thirds from more than $1.2 trillion in November 2021 to less than $400 billion.
The fall in value has meant that Elon Musk, its chief executive and major shareholder, is no longer the richest person in the world, according to a Guinness World Records report, and has broken the world record for the greatest loss of personal wealth in history. The distraction caused by Musk’s takeover of the social network Twitter is said to have contributed to the carmaker’s decline in value.
Tesla shares, listed on the New York Nasdaq stock exchange, fell 6% in premarket trading on Friday.
A Tesla spokesman said the company has seen a “normalization of some cost inflation” after “a turbulent year of supply chain disruptions,” which has allowed it to lower costs for customers.
The price of the cheapest Model 3 saloon, the rear-wheel drive version, fell by £5,500 to £42,990. The cheapest Model Y crossover fell to £44,990, although the most expensive Performance version got the biggest cut, dropping £8,000 to £59,990.
In the US, the entry-level Model Y is now $52,990 (£43,526) versus $65,990 — a 20% drop that means the vehicle qualifies for US tax credits. The Model 3 dropped to $43,990, a $3,000 reduction.
Dan Ives, an analyst at US investment bank Wedbush, said the price cuts in the US and Europe were “conspicuous” and that investors were likely to react negatively. He added that an “EV price war” is now underway between manufacturers.
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However, he said that this is Musk’s “right strategic poker move” and that the cuts could boost shipments by 12% to 15%.
“Tesla now has a global reach it didn’t have a few years ago and margin flexibility to take aggressive moves like this to gain further market share in this EV arms race,” Ives said.
Ginny Buckley, executive director of auto website Electrifying.com, said Tesla buyers who have delivered in recent months are “unimpressed by the move, which could ultimately erode confidence in the company.”
“Automakers typically manage pricing and incentives carefully to avoid collapsing used values and angering customers,” she said.