By | November 9, 2022
Tesla cuts prices sharply when it can to increase demand

Tesla has cut the prices of most of its electric cars in the US and Europe by as much as 20 percent in an effort to make up for subdued demand.

The car manufacturer is facing increasingly tough competition in the global market for electric vehicles. It also has to contend with rising interest rates in the US, which has increased the cost of financing vehicle purchases.

“It’s no secret that demand for Tesla is starting to see some cracks in this global slowdown,” Wedbush analyst Dan Ives said in a report published after the price cuts were published.

For some of Tesla’s cheaper models, the cuts put them in range to qualify for $7,500 in federal tax credits made available starting Jan. 1 under the Inflation Reduction Act. The credit is available on electric vehicles priced under $55,000.

Tesla has enjoyed steady and rapid growth over the past decade but is now grappling with a variety of challenges, including concerns that its CEO Elon Musk is too preoccupied with Twitter, the social media platform he was acquired last year for $44 billion.

Mr. Musk has sold billions of dollars worth of Tesla stock to finance the Twitter acquisition, which has depressed Tesla’s share price, and he has come under fire for firing a large portion of Twitter’s employees. He has also broadcast polarizing political views on the social media platform — including several messages that appeared to support Russia in its war on Ukraine — that have damaged his and Tesla’s reputation with some consumers.

Tesla is not alone in dealing with slowing sales. Car sales in the US fell about 8 percent last year to fewer than 14 million cars and trucks, the lowest level since 2011, mainly because a shortage of computer chips prevented manufacturers from making as many vehicles as consumers wanted to buy.

Sales of electric vehicles, however, rose 66 percent to more than 808,619, according to Kelley Blue Book, a market researcher. And while Tesla continues to dominate the segment, several automakers are gaining ground. Ford, Volkswagen and several other automakers reported significant increases in electric car sales last year, offering many models that were significantly cheaper than Tesla’s. Hyundai and its subsidiary Kia combined sold more than 43,000 electric vehicles in the US in 2022, up from just a few hundred in 2021.

New competitors are also on the way. Later this year, General Motors is slated to begin manufacturing electric versions of its Chevrolet Silverado pickup and Chevrolet Blazer and Equinox sport utility vehicles.

Tesla has also had problems in China, its largest market, where a local manufacturer, BYD, is now the number one electric vehicle brand. Tesla recently cut prices in China and reported a global sales total for 2022 it was below analysts’ expectations.

Although Tesla is still celebrated for the advanced technology it packs into its cars and their sleek design, Tesla has been slow to add to its model line. It currently offers only four vehicles, and two are luxury models beyond the reach of most mainstream consumers. It last introduced a new car in 2020, when the Model Y went into production.

Since 2019, Tesla has promised to introduce a pickup truck, called the Cybertruck, but has delayed production several times. The company now hopes to start doing so later this year. It has an angular, futuristic design and is expected to be sold as a luxury vehicle, which may limit its appeal.

In December, Tesla began supplying a small number of battery-powered semi-trucks to PepsiCo, its first customer.

By lowering the prices of its current models, Tesla is indicating that it is willing to forgo profit in order to increase sales volume. The company typically posts gross profit margins of 26 percent — more than double that of some rival automakers.

After the price cuts were reported, Tesla shares fell more than 2 percent on Friday. The stock has fallen by around 70 percent since November 2021.

The latest price cut on Tesla vehicles appeared on the company’s website late Thursday. The automaker now shows a high-end Model 3 Performance compact selling in the U.S. for just under $54,000, down from $63,000, a 14 percent decrease.

The most affordable version of the Model 3 now sells for just under $44,000, down about $3,000 or 6 percent. The Model Y now starts at $53,000, down 20 percent from the previous price of $66,000.

Tesla sold 1.3 million cars in 2022, up 40 percent from the year before, but less than the 50 percent annual growth target the automaker had set for itself. In recent months, rising loan rates have made its electric cars more expensive for borrowers.

Tesla’s fourth-quarter output of 440,000 cars was 34,000 more than the company delivered, suggesting the sluggishness went beyond supply chain and production issues.

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