Tesla has cut prices on its entire US electric vehicle model lineup for the third time this year, making all models more affordable and adding a lower-cost version of its most popular model, the Model Y. The largest cuts of $5,000 were for the company’s slower-selling, more expensive models, the Model S and the Model X. The Model 3 saw a $1,000 price cut.
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The move comes as Tesla’s Q1 sales grew 36 percent, but fell short of analysts’ expectations. Analysts have speculated that Tesla is cutting prices to take advantage of its profit margin per vehicle, which is larger than most automakers’. The move could increase market share and put pressure on start-ups and legacy automakers now rolling out EVs. The company is seeing a lot pressure from Chinese companies, which is its biggest market, as well as new start-ups in the West.
Tesla CEO Elon Musk wrote on Twitter that demand is limited by affordability. “There is plenty of demand for our products, but if the price is more money than people have, that demand is irrelevant,” he wrote.
Some analysts see the price cuts as a sign of slowing demand for Tesla, which needs to sell more vehicles to keep its factories running at full capacity to protect high profit margins. “Overhead of underutilized plant eats up margin extremely quickly,” said Sam Abuelsamid, an e-mobility analyst at Guidehouse Research. Tesla has added a huge plant near Austin to its US factory footprint, in addition to its original plant in Fremont, California. The company also has built new plants in Shanghai and near Berlin.
Analysts are watching to see if the price drops cut into the company’s profit and margins per vehicle. Tesla says it will release Q1 earnings after the markets close on April 19.
