tesla price cut

Tesla (NYSE: TSLA) has lowered the prices for its premium Model S and Model X – this is the fifth price change announced by the company since the beginning of the year and comes amid concerns over electric vehicle (EV) demand.

The company lowered the prices of its premium Model S/X by between 4%-9%. Notably, it is quite usual for Tesla to offer discounts towards the end of a quarter.

In the fourth quarter of 2022, the company offered a $3,750 credit to Model 3 and Model Y buyers in North America.

It raised the credit to $7,500 subsequently in an apparent bid to spur month-end sales in December. In the past, the company offered free Supercharging as an incentive to spur sales toward the end of the quarter.

In 2022, Tesla delivered 1.31 million cars, but the YoY growth rate of 40% trailed its initial forecast of 50% growth.

The Elon Musk-run company said that it expects to produce 1.8 million cars in 2023. While it would imply growth of only about 31%, Musk said that the company could produce as many as two million cars in 2023.

Meanwhile, it has been frequently adjusting vehicle prices which irked buyers who placed orders at higher prices – at the beginning of 2023 only, Tesla announced a price cut.

The company’s price cuts signaled a price war and soon automakers like Ford and Xpeng Motors followed suit.

Tesla Lowers Prices of Model S and Model X

Notably, Tesla Model S and Model X don’t qualify for the federal EV tax credit because of their high price point. Lucid Motors’ Air sedan also does not qualify for the tax credit but recently the company offered a $7,500 credit to buyers.

Saudi Arabia’s sovereign wealth fund PIF (public investment fund) is the majority shareholder of Lucid Motors. There are reports that PIF is considering taking Lucid Motors private. There is a guide on how beginners can buy Lucid Motors stock.

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Coming back to Tesla, Musk has downplayed demand fears in the past. During its 2023 investor day that was held on March 1, Tom Zhu who heads Tesla’s global production said: “As long as you offer a product with value at affordable price you don’t have to worry about demand.”

He was responding to a question on how Tesla plans to accelerate its market share in China, the world’s largest automotive market.

Musk also echoed similar views and added: “The desire for people to own a Tesla is extremely high. The limiting factor is their ability to pay for a Tesla.”

Musk believes that price cuts aided by operational efficiencies would fuel the demand for Tesla cars.

The company expects to compensate for the price cuts with economies of scale and lower raw material costs.

However, Tesla’s price cuts have been a headache for other automakers, especially startup EV companies which are anyways posting losses.

Startup EV Companies Are Struggling

Most startup EV companies are struggling. NIO reported a wider-than-expected loss for Q4 2022. Its gross margin also plummeted to a mere 3.9% in the quarter compared to 17.2% in the corresponding quarter in 2021.

Rivian also posted a massive net loss of $1.72 billion in Q4 2022 while its cash burn was even higher at $2.2 billion.

It forecast a gross loss in 2023 also but said that it would start generating positive gross margins in 2024 – its 2023 production guidance also trailed estimates and raised demand fears.

Rivian expects to produce around 50,000 cars in 2023 which is below what analysts were expecting. Lucid Motors too spooked markets with its 2023 guidance and expects to produce only between 10,000-14,000 cars in the year.

Tesla Lost Market Share in China in February 2023

Coming back to Tesla, it is also facing stiff competition from BYD in China, Tesla sold 74,402 China-made electric cars in February – a YoY rise of 31.6%.

BYD, which last year surpassed Tesla to become the largest seller of NEVs (new energy vehicles) sold 193,665 cars in February, 119% higher than the corresponding month in 2022.

Notably, while Tesla is a pure-play BEV (battery electric vehicle) company, BYD also sells hybrids. In February, BYD sold 90,639 BEVs and 101,025 hybrids. The remaining were commercial vehicles.

According to data from China Merchants Bank International, Tesla’s market share in China fell to 9% in February 2023 as compared to 10% in the corresponding month in 2022. At the same time, BYD’s market share rose by 10 percentage points to 37% in the month.

During Tesla’s Q4 2022 earnings call, Musk was all praise for Chinese EV companies, Ford also sees Chinese EV companies as strong competitors as it tries to scale up its EV output.

Last year, investment firm Baillie Gifford also increased their stake in NIO, and many analysts consider NIO as a worthy competitor to Tesla – read our guide on how to buy NIO stock.

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