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Tesla Cuts Prices on Model 3 and Model Y Vehicles

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Andrew R. Michaud

• October 06, 2023

Tesla has announced another round of price cuts on its popular Model 3 and Model Y vehicles in the U.S. This move has caused some concern among investors, with the company's stock experiencing a decline in early trading on Friday.

Updated Pricing

According to the official Tesla website, the price of the rear-wheel drive Model 3 has been reduced from $40,240 to $38,990. Additionally, the long-range and performance versions of the Model 3 have seen price reductions to $45,990 and $50,990 respectively.

In terms of the Model Y, the long-range vehicle's price has been lowered to $48,490 from $50,490, while the performance car's price now stands at $52,490.

Impact on Stock

As a result of these price cuts, Tesla's stock is currently down 1.4% in premarket trading, reaching $256.40. In contrast, both the S&P 500 and Nasdaq Composite futures are experiencing gains of 0.2% and 0.3% respectively.

Delivery Figures and Demand Concerns

Tesla recently reported delivery numbers for the third quarter, revealing that they had delivered approximately 435,000 cars. While this figure was slightly below the consensus estimate of 455,000, it is worth noting that the initial estimate at the start of the quarter was around 473,000 units according to FactSet. The slight miss can be attributed to temporary factory shutdowns for upgrades.

These delivery figures have raised questions about demand for Tesla vehicles. Furthermore, the recent price cuts have fueled further doubts. In July, CEO Elon Musk stated during an earnings conference call that Tesla has real-time visibility into demand and can adjust production accordingly. Unlike traditional automakers such as Ford Motor (F), Tesla operates more directly with customers through its online ordering system, eliminating the need for a network of independent dealers.

Despite the concerns, Tesla remains committed to providing high-quality electric vehicles at competitive prices, expanding its market reach and solidifying its position as a leader in the automotive industry.

Tesla Adjusts Prices in Response to Economic Uncertainty

Tesla CEO Elon Musk recently addressed concerns about the pricing of their electric vehicles amidst economic uncertainty. Musk acknowledged that buying a new car is a significant decision for most people, leading them to pause when facing economic instability. As a result, Tesla has adjusted its prices in an effort to counter the impact of rising interest rates and the overall slowdown in the economy.

Previously, a rear-wheel drive Model 3 from Tesla would cost around $47,000. However, in an attempt to make their vehicles more accessible, Tesla has lowered the price to $39,000, representing a 17% decrease. Additionally, the absence of the $7,500 Federal purchase tax credit has been factored into these new prices. As a result, the net cost of a rear-wheel drive Model 3 now stands at approximately $32,000, representing a significant 33% reduction.

Similarly, a long-range all-wheel drive Model Y that originally had a price tag of $67,000 has been reduced to $48,500, a decline of 28%. This decrease is also inclusive of the tax credit, bringing the net cost for buyers down to approximately $41,000, a substantial reduction of 39%.

While these price adjustments have allowed Tesla to cater to a broader customer base, they have impacted profit margins. In 2022, Tesla earned operating profit margins of around 17%, but analysts predict a decline to 10% in 2023 and a subsequent increase to 15% in 2024. In order to maintain a profit margin of 15%, prices will need to stabilize.

It is worth noting that not all recent pricing actions by Tesla have involved reductions. The company has released an updated version of the Model 3 in China and Europe with a higher price point. However, this update has yet to be introduced in North America, creating anticipation among investors and potential buyers.

Furthermore, waiting for new models or updates can contribute to weak demand and cause prices of older versions to decline. This demonstrates the importance of staying up to date with Tesla's product offerings.

In terms of stock performance, Tesla has experienced significant growth this year, with a 111% increase year-to-date. However, it has seen a slight 6% decline over the past three months, highlighting the volatility of the market.