Tesla lowers prices by 20% across the globe. Reason behind the declining of prices

Tesla lowers prices by up to 20% across the board.

After falling short of Wall Street delivery projections for 2022, tesla has lowered prices for its electric vehicles by as much as 20 per cent globally, extending an aggressive pricing strategy and pushing competitors.

Elon Musk, the business’s CEO, had earlier expressed concern that the company could have to decrease prices to maintain volume growth at the cost of profit due to the case of recession and rising interest rates.

On Friday, shares of Tesla fell by 3.6 per cent. Musk recognised that costs have risen to an “embarrassingly high” level and could reduce demand last year.

Following a series of price reductions last week in Asia, the manufacturer reversed course from the approach it had used through a large part of 2021 and 2022 when new vehicle orders outpaced supply. The reduced prices in the United States, Europe, the Middle East, and Africa are a result of this.

Thomas Hayes, chairman and managing member of Great Hill Capital, declared that “competition is coming, and they are responding with price cuts.” Given that consumers in the US and France will be eligible for specific government tax incentives, the price reductions may make electric cars available to those who may have yet been priced out of the market.

According to calculations by Reuters, the Model 3 sedan and Model Y crossover SUV saw price reductions in the US ranging from 6 to 20 per cent, with the base Model Y now costing $52,990, down from $65,990.

Tesla reduced the price of its Model S sedan and premium crossover SUV in the US. For a US customer purchasing the long-range Model Y, the new Tesla price plus the US subsidy equals a savings of 31%. As of January 1, the decision expanded the range of Tesla vehicles eligible for a US federal tax credit of up to $7,500.

The five-seat Model Y was ineligible before the price reduction, which Musk dubbed “messed up.” The Model Y’s long-range variant will be eligible following the price reduction.

Customers in France who purchase the Model 3 for 44,990 euros ($48,570) will now receive a further discount thanks to a 5,000 euro ($5,400) government subsidy on an electric car programme with a threshold of 47,000 euros ($50,8580).

Prices for the Model 3 and Model Y were reduced in Germany by somewhere between 1% to approximately 17%. The price of the most popular Model Y decreased by 9,100 euros ($9,850) to 44,890 euros ($48,499).

Without going into detail about which costs have decreased, a spokeswoman for Tesla Germany declared that a decrease in cost inflation contributed to price reductions in its top European market. Additionally, it brought down costs in Austria, Switzerland, and France.

Struck across the bow

Investors were concerned that the move, even if it increased sales volumes, may reduce the company’s earlier strong margins, primarily as competition increased. According to Wedbush analyst Dan Ives, the action shows Musk’s offensive posture and could grow worldwide deliveries by 12 to 15 per cent this year.

With an EV price war now in progress, Ives wrote in a research note that “this is a clear shot across the bow at European manufacturers and US mainstays [GM and Ford] that Tesla is not going to play well in the playground.”

He continued, “Margins will mourn as a result, but we like Musk and Tesla’s smart poker move. General Motors Co. and Ford Motor Co. of the US were among the largest losers on the broad S&P 500 Index after seeing declines of 4.9 per cent and 6.1 per cent, respectively. In Europe, Stellantis NV and Volkswagen AG had declines of 3.9 per cent and 2.8 per cent, respectively.

Puncture to the gut

Tesla supporters and customers argued the price reductions hurt people who had just bought a car, giving them a reduced second-hand value. Greg Woodfill of Seattle considered waiting until this year to receive the US subsidies but was influenced by a $3,750 discount at the time. He purchased a Model Y in December.

To be honest, it feels unfair for Tesla to try to increase its fourth-quarter sales by offering discounts, only to lower prices a month later, he told Reuters on Friday. He said, “They should have done it in December if they knew they would decrease the price this much.

Owners in China protested at delivery centres, demanding reimbursement after Tesla lowered prices last week by 6 to 13.5 per cent. About 75% of Tesla sales in 2021 were in the US and China combined, although Europe’s sales share has been increasing.

Last week, Tesla lowered pricing in China and other Asian regions, which analysts predicted would increase demand and put pressure on rivals, such as BYD, to do the same, potentially igniting a price war in the world’s largest market for electric vehicles.