1674401673 Teslas price cuts rock the auto market

Tesla’s price cuts rock the auto market

The Elon Musk-led automaker’s latest cut — up to 20% off the price of some versions of its best-selling Model Y earlier this month — shocked Stanly Tran. The 32-year-old California psychotherapist was on the waiting list for a Ford F 1.81% Mustang Mach-E electric SUV, but quickly gave up his reservation and bought a Model Y after a friend alerted him to the price drop.

“‘No way,'” recalls Mr. Tran upon seeing Tesla’s new pricing. The Model Y offers more battery range at a competitive price than the Mach-E, he said.

Tesla’s price cuts have drawn mixed reactions from investors and Wall Street analysts. Some suggested the move was taken in response to slacking demand. Others saw Tesla squeezing competitors by sacrificing some of its strong operating profit margins — which are larger than most automakers’ — while lowering prices enough that many models qualified for a $7,500 tax credit.

Tesla finished the worst year in its stock’s history, losing roughly $675 billion in market valuation in 2022 — the same year CEO Elon Musk bought Twitter. But the reasons for the sell-off go well beyond the social media company. WSJ’s Sean McLain explained. Photo illustration: Amber Bragdon/Getty Images

What’s clear, analysts say, is that lower Tesla prices are undercutting some competitors’ electric vehicles as those automakers try to convince investors and car buyers that they’re a viable Tesla alternative by launching new plug-in models bring. It also wreaked havoc on used-car lots, dealers say, taking thousands of dollars off the value of some Teslas overnight.

The starting price for the Model Y is now around $53,000, up from around $66,000. That’s still higher than a base-model Mach-E, but below some of Ford’s higher-end versions of the electric vehicle. The Model Y’s base price is about $10,000 below the starting point for General Motors Co. GM’s Cadillac Lyriq -1.06%, a similarly sized SUV the automaker is now launching.

Meanwhile, the return of a federal tax credit for some Tesla buyers gives the company additional pricing power. Under the federal climate package passed last year, some buyers of Tesla’s best-selling models — the Model Y and Model 3 — are eligible for the $7,500 subsidy if the cars are priced at $55,000 or less. In recent years, Tesla buyers were not eligible at all due to a manufacturer cap on total EV sales, but the cap was lifted on Jan. 1 under the new law.

Mr. Musk didn’t discuss Tesla’s reasons for the price cuts. He said rising interest rates could hurt consumer demand by making cars less affordable.

Fed rate hikes make cars more expensive for consumers, increasing the difficulty for auto companies,” Mr Musk tweeted Thursday.

Teslas price cuts rock the auto market

Tesla sales accounted for about 65% of total U.S. electric vehicle sales in 2022.

Photo: Justin Sullivan/Getty Images

Currently, traditional automakers that don’t have Tesla’s EV scale are having slim profit margins or losing money on their plug-in models, said Bank of America analyst John Murphy. Tesla’s price cuts will likely pressure automakers to further reduce their electric vehicle costs and could ultimately lead to a price war, he said.

“These price cuts will likely make business even more difficult as they try to ramp up production of EV offerings,” he said.

A GM spokesman said the company is monitoring Tesla’s strategy, but it has had no effect. “It underscores the value of a broad EV portfolio at multiple price points, and that’s what we’re developing,” he said.

A Ford spokesman said the company has seen record sales of Mach-E over the past year and is seeing strong demand for its line of EVs. The company continues to monitor the market to stay competitive, he said.

GM Chief Executive Mary Barra and Ford Chief Executive Jim Farley have each stated a goal of eventually ousting Tesla as the top seller of electric vehicles in the US, but are falling far behind for now. According to sales data and estimates from research firm Motor Intelligence, Tesla sales accounted for about 65% of total U.S. electric vehicle sales in 2022, beating Ford’s 7.6% and GM’s 3.5%.

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The number of car buyers researching Tesla has skyrocketed after the price cut in early January, research site Edmunds said. The Model Y was the second most researched vehicle on Edmunds’ website for the week ended January 15, up from 70th the week before. The Model 3 improved by 36 places.

Shortly after the price cut, applications for financing for Tesla vehicles tripled at Tenet, a New York startup that offers financing to electric vehicle buyers. The influx of customers is still high, said Tenet Managing Director Alex Liegl.

Some auto dealers say they’re worried about losing customers amid Tesla’s price moves.

Howard Drake, who owns Cadillac, Buick-GMC and Subaru dealerships in the Los Angeles area — one of the largest EV markets in the country — expects Tesla’s lower prices to attract customers looking for EVs, however including those who would otherwise have bought a traditional gas-powered car.

“In a place like LA, the entire mid-size luxury SUV market is being reevaluated,” he said. “The EV market will feel it the most, but everything will be affected.”

Meanwhile, dealers who sell Teslas from their used inventory say valuations of some models have fallen several thousand dollars following this month’s price cut. In the first 17 days of January, prices for used 2020-model Teslas and newer are down about 25% from their peak in June last year, about twice the rate of the industry-wide decline over the same period, Edmunds said.

Shaun Del Grande, chairman of a large dealership group in the Bay Area, another electric vehicle stronghold, said he stocks dozens of used Teslas.

“The market is softening,” he said. “When new car prices go down, it affects the price of used cars. We see it on a grand scale.”

Write to Nora Eckert at [email protected] and Mike Colias at [email protected]

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