Tesla launches aggressive pricing cuts in Europe, U.S.

Jessica Thompson

Tesla reduced prices on its electric vehicles in Europe and the U.S., launching an EV price war that will boost its deliveries and challenge traditional automakers.

The automaker cut prices for its Model Y and Model 3 cars by up to 20 percent in the company’s latest effort to stoke demand after several quarters of disappointing deliveries.

To continue growing and fully utilize the plants that it has opened or expanded in the last year, Tesla appears to be compromising the profit margins that Wall Street celebrated when the company was running up against production constraints.

Wedbush analyst Dan Ives said the price reductions could increase global deliveries by 12 percent to 15 percent this year and shows that CEO Elon Musk is on the offensive.

“This is a clear shot across the bow at European automakers and U.S. stalwarts [GM and Ford] that Tesla is not going to play nice in the sandbox with an EV price war now underway,” Ives said. “Margins will get hit on this, but we like this strategic poker move by Musk and Tesla,” Ives said in a research note.

Evercore ISI analyst Chris McNally said: “There will be a significant impact to Tesla’s near-term gross margin, and the math depends on how long these new price levels last.”

Even if the cuts apply to just a portion of the year and Tesla partially reverses them, 2023 earnings per share could end up 30 percent to 4 percent below the current consensus, McNally wrote to clients on Friday.

Tesla said on Friday that was able to provide its cars at a more accessible price because cost inflation was normalizing.

“At the end of a turbulent year with interruptions to the supply chain, we have achieved a partial normalization of cost inflation, which gives us the confidence to pass this relief onto our customers,” a spokesperson for Tesla Germany said in a statement.

In Germany, Tesla cut prices on the Model 3 and the Model Y by up to 17 percent depending on the configuration.

The Model 3 was the best-selling electric vehicle in Germany last month, followed by the Model Y, beating out Volkswagen’s full-electric ID4. VW recently raised the price of the ID3 full-electric compact hatchback, putting it on parity with the Model 3.

In the UK, Model Y prices were reduced to 44,990 pounds from 51,990 pounds. The Model Y and Model 3 were the two best-selling EVs in the UK last year.

In France, customers buying the Model 3 for 44,990 euros will now get a further price reduction through a government subsidy of 5,000 euros. The threshold for the EV incentives is 47,000 euros. Model 3 prices in Italy were cut by between 11 percent and 22 percent. Model Y prices were reduced by between 6 percent and 18 percent.

Last year, the U.S. and China combined had accounted for about 75 percent of Tesla sales, although the automaker has been growing sales in Europe, where its factory near Berlin has been ramping up production.

For a U.S. buyer of the long-range Model Y, the new Tesla price combined with the U.S. subsidy that took effect this month amounts to a discount of 31 percent. In addition, the Tesla move broadened the vehicles in its lineup eligible for the Biden administration tax credit.

Before the price cut, the five-seat version of the Model Y had been ineligible for that credit, a designation Musk had called “messed up”. After the price cut, the long-range version of the Model Y will qualify for the $7,500 federal credit.

In China, where Tesla cut prices last week by 6 percent to nearly 14 percent, owners protested at delivery centers across the country, pressing Tesla for compensation. Tesla has also cut prices in South Korea, Japan, Australia and Singapore.

Tesla missed Wall Street estimates for fourth-quarter deliveries. Full-year growth in deliveries was 40 percent, also short of Musk’s own forecast of 50 percent growth.

Last month, Musk said “radical interest rate changes” had changed the industry-wide outlook and that Tesla could lower pricing to sustain volume growth, which would result in lower profit.

The pricing shift is the first major move by Tesla since the automaker appointed its lead executive for China and Asia, Tom Zhu, to oversee U.S. output and U.S. and Europe sales.

Reuters, Bloomberg, Luca Ciferri and Nick Gibbs of Automotive News Europe contributed to this report

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