Tesla cars

Tesla has hiked its car prices in the US for all the models. The price hike comes after a sharp rise in most raw material costs which is taking a toll on automakers’ profitability.

NIO, for instance, reported a fall in its gross margins in the first quarter of 2022 due to higher costs as well as supply chain issues. NIO has announced a new model to take on Tesla, which led to a spike in its stock price. Notably, while most auto companies including startup EV (electric vehicle) companies like Rivian have announced a price hike, NIO hasn’t announced one.

tesla valuation

As for Tesla, the company has increased car prices several times over the last year. Prices for raw materials like steel, nickel, copper, and aluminum have risen over the last year. Also, as the demand for new cars was strong while supply was constrained by the chip shortage, automakers were able to pass the higher input costs to buyers.

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Tesla Hikes Car Prices

Tesla has increased the price of its Model 3 Long Range by $2,500 to $57,990. The price for Model Y Long Range has been increased by $3,000 and would now start at $65,990. Together, Model 3 and Model Y account for most of the company’s deliveries. In the first quarter of 2022, the Elon Musk-run company delivered a record 310,048 vehicles and 95% of these were Model 3/Y. The company does not provide the individual breakup of these two models.

Tesla has also increased the price of its dual-motor all-wheel drive Long Range Model S by $5,000 to $104,990. The price for the Plaid model, which has a higher range and was launched in 2021, has been kept at $135,990 only. Notably, Tesla was also looking to launch a Plaid+ model that would have competed with Lucid Air on the range. However, Musk eventually decided against launching the Plaid+ and said that the Plaid Model was good enough.

Meanwhile, the biggest price hike of $6,000 has been announced for dual-motor all-wheel drive Long Range Model X which would now start at $120,990. Here it is worth noting that Tesla cars don’t qualify for the US Federal tax credit as it has reached the threshold. Among other automakers, only General Motors has reached that threshold. Automakers are lobbying with the US government to lift the threshold as they are investing billions to ramp up their EV production.

However, Tesla currently sells more electric cars than any other automaker. The company’s strong execution, software capabilities, and pricing power are among the reasons Tesla bulls see the stock as a buy.

Price Hikes Would Help Tesla in a “Very Tough Quarter”

In a recently leaked internal mail, Musk told employees that “This has been a very tough quarter, primarily due to supply chain and production challenges in China.” He added, “So we need to rally hard to recover!” It is not uncommon for Musk to send such emails towards the end of the quarter as the company tries to increase its deliveries.

Analysts expect the company to deliver fewer than 300,000 cars in the second quarter, which would be lower than what it delivered in the first quarter. It would be the first time in the last couple of years when the company’s vehicle sales would fall if the estimates indeed turn out to be true.

That said, Tesla has been consistently profitable since the third quarter of 2019. Despite the cost headwinds, it posted an operating profit of 19% in the first quarter of 2022, a new record. Its adjusted net profit of $3.3 billion was also a record.

Meanwhile, Tesla’s price hikes are coming at a time when raw material costs have dropped across the board amid the crash in commodity prices. The price hikes would help Tesla increase its margin further.

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