You are here. How to explain the massive price drops?

The reasons and purposes for the steep price cuts applied to the Tesla Model 3 and Model Y are multifaceted. Falling costs, market development, production constraints… Argus considers this surprising strategy of the American electric car manufacturer.

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How to explain the steep price drops of the Tesla Model 3 and Model Y?

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Tesla’s brutal price cuts on the Model 3 and Model Y are not limited to France or even Europe, but also to North America and China. France, it reaches 9,500 euros for a sedan and 11,000 euros for an SUV, and varies by options. In addition to this, there is also an environmental bonus that the entry-level versions are compatible with again. So, with everything included, the Model 3 is now available for €39,990, which is €13,500 or 26% less for the customer than at the beginning of January. According to Tesla, this policy is possible due to the reduction of production costs (new factory in Germany, optimized processes, etc.). But other factors besides this official explanation can shed light on this strategy.

More contested market shares

The price drop only applies to Tesla’s two most compact models, which provide the brand’s entry level. On the contrary, the newly launched facelifted Model S and Model X are significantly more expensive than their pre-facelift counterparts. The goal is to revive orders for several reasons. On the one hand, in segments C and D, competition is increasing With models whose performance cannot be envied by “small” Teslas. The latter enjoyed the absence of serious competitors for a long time and was thus able to charge high prices. With the arrival of the Kia EV6, Hyundai Ioniq 5, Ford Mustang Mach-E, BMW i4 and others, the situation has changed significantly. However, there’s nothing like lowering prices to re-engage customers, especially if they fear further increases due to Tesla’s frequent yo-yo price movements.

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Model 3 was alone in its segment for a long time.

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You still need to have edges to cut to lower the score. But to be precise, after being in deficit for a long time Tesla posted a huge margin in 2022, averaged $15,653 (€14,408) per vehicle sold in the third quarter. That’s twice as much as Volkswagen and four times as much as Toyota! Therefore, it is difficult for Tesla’s competitors to respond to this price attack. This embarrasses some young producers, especially in China, who have weak kidneys.

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The Model Y faces increasing competition.

The Model Y faces increasing competition.

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Tesla’s version of winter sales

Another major motivation for this price cut at Teslaavoid factory jams and to use their productive capacities optimally. Because in recent months, deliveries have lagged behind production. In all of 2022, Tesla produced 1,369,611 vehicles and delivered 1,313,851 vehicles. In Q4 2022, Tesla produced 419,088 Model 3/Y for 388,131 deliveries, 20,613 Model S/X for 17,147 deliveries. Stimulating demand with low prices should allow for the sale of stocks and extended delivery times to optimize production.

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Currently, Tesla is making cars faster than it is delivering them.

Currently, Tesla is making cars faster than it is delivering them.

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Any effect appears. This was reported by the Chinese specialized media500% increase in orders After Tesla Model 3 and Model Y price drops. In Germany, Tesla is hiring with a vengeance to allow its Grünheide plant to ramp up and thus keep up with the new rhythm of orders. So the moment seems right to get a new compact Tesla at a good price and quickly, with deliveries of the Model 3/Y ordered today to be announced in France between February and March. But who knows what surprises await us from the Austin firm in the coming months and how the competition will react?

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Tesla increases production capacity;  sales must follow.

Tesla increases production capacity; sales must follow.

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Sources: Tesla, Reuters, Chongqing Morning Post

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