Tesla extends price cuts in US and Europe to boost demand

Jan 13 (Reuters) – Tesla (TSLA.O) has cut prices for its electric vehicles in the United States and Europe by up to 20%, extending an aggressive discount strategy after it missed Wall Street estimates for deliveries of 2022.

The move, which sent Tesla shares down 4.5% in pre-market U.S. trading, came after CEO Elon Musk warned that the prospect of a recession and higher interest rates meant it could lower prices to support volume growth at the expense of earnings.

The price drop in Tesla’s core markets marks a reversal of the strategy the automaker had pursued through much of 2021 and 2022, when new vehicle orders exceeded supply. Musk acknowledged last year that prices had become “embarrassing” and could hurt demand.

More stable cost inflation was also a factor in the price reduction, a spokesperson for Tesla Germany said, confirming the price cuts in its main European market.

Price cuts in the United States, announced late Thursday on its global bestsellers, the Model 3 sedan and the Model Y crossover SUV, were between 6% and 20%, according to Reuters calculations.

The base version of its Model Y is now $52,990, down from $65,990 previously.

That’s before a federal tax credit of up to $7,500 that went into effect for many electric vehicle models in early January.

Here is a table of price drops by model in Germany and the United States:

Tesla also cut prices for its Model X luxury crossover SUV and Model S sedan in the United States.

In Germany, it slashed Model 3 and Model Y prices by around 1% to nearly 17% depending on configuration. It also cut prices in Austria, Switzerland and France.

For a U.S. long-range Model Y buyer, the new Tesla price combined with the U.S. subsidy equals a 31% discount. Additionally, Tesla’s move expanded the vehicles in its lineup eligible for the Biden administration’s tax credit.

Prior to the price drop, the five-seat version of the Model Y was not eligible for this credit, a designation Musk called “screwed up.” After the price drop, the long-range version of the Model Y will be eligible.

Discounts can make electric cars affordable for people who may have been off the market before.

In France, customers buying the Model 3 for 44,990 euros ($48,773) will now get a further price reduction thanks to a government subsidy of 5,000 euros. The threshold for the EV program is 47,000.

VOLUME VS MARGINS

“This should really boost 2023 (Tesla) volumes,” Gary Black, a Tesla investor who has remained bullish on the company and its prospects thanks to the recent sharp decline in the share price, said in a statement. tweet. “It’s the right decision.”

Still, shares in U.S. premarket trading were lower as investors feared the move would erode bumper margins, especially as competition intensifies.

“Tesla is an outlier because they always have some pretty hot valuations when it comes to how many cars they actually sell. ‘together,’ said Michael Hewson, chief market analyst at CMC Markets UK.

Some users on online Tesla fan forums have also complained that the price cuts disadvantaged those who had recently purchased their vehicle, leaving them with a lower used value.

“Just cutting 10,000 euros like this – really makes you feel like you paid way too much,” wrote one user on a “Tesla Drivers and Friends” forum.

In China, where Tesla slashed prices last week by 6 to 13.5 percent, owners protested at delivery centers, demanding compensation.

Prior to the cuts, Tesla’s inventory in the United States, as tracked by the models its website lists as immediately available, tended to increase. Prices for used Tesla models had also fallen, increasing pressure to adjust prices for new cars.

For 2021, the United States and China combined accounted for about 75% of Tesla’s sales, although it has increased sales in Europe, where its Berlin factory has increased production.

SALES MANAGEMENT

Tesla slashed prices in China and other Asian markets last week in its first major move since appointing its chief China and Asia executive, Tom Zhu, to oversee production and sales. in the USA.

Analysts had said China’s price cuts would boost demand and increase pressure on rivals, including BYD (002594.SZ), to follow suit in what could become a price war over the biggest single market for electric vehicles.

Tesla’s Model 3 was the best-selling electric vehicle in Germany last month, followed by the Model Y, beating Volkswagen’s all-electric ID.4 (VOWG_p.DE). Volkswagen recently raised the price of its entry-level ID.3, putting it on par with the now discounted Model 3.

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

($1 = 0.9224 euros)

Reporting by Zhang Yan in Shanghai, Hyunjoo Jin in Seoul, Victoria Waldersee in Berlin; Additional reporting by Bansari Mayur Kamdar in Bangaluru; Written by Kevin Krolicki in Singapore and Josephine Mason in London; Editing by Lincoln Feast, Kenneth Maxwell, Mark Potter and Alexander Smith

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