For quite some time, it has been evident that Tesla boasts impressive profit margins, allowing them to not only lower prices on their entire lineup, but to do so in a significant and unexpected way which impacts the whole EV market. Recently, Tesla took their discounts and incentives to the next level, with the starting price of their Model Y dropping from $65,990 to $52,990, and becoming eligible for an additional $7,500 US federal EV tax credit.
For some time, many have believed that Tesla’s prices were too steep, and they continued to increase in 2022. Despite this, demand for their vehicles remained high, and waitlists continued to grow. Customers were often waiting for months to take delivery of their vehicles, with some opting to purchase competing models due to the prolonged wait. However, it should be noted that many other electric vehicle options were also in high demand and difficult to acquire.
Tesla, unable to meet its delivery targets for 50% growth from 2021 to 2022, has announced significant price cuts for all of its vehicles in the US and in other regions worldwide. Despite the reduction in revenue from the discounts, the company’s sales have been accelerating, having a ripple effect on the US and global automotive industry. Initially, the stock price of Tesla may have seen a decline with the announcement of the price cuts, but it has recently been showing signs of recovery due to the increase in sales.
As reported by Teslarati, many automakers, particularly those without a strong presence in the electric vehicle market, are struggling with profitability. The loss of revenue is primarily coming from the sales of plug-in vehicles, as these companies are unable to match the profit margins of Tesla. To maintain sales, they may have to significantly lower prices. According to Bank of America analyst John Murphy, this is the current state of the market.