Why Tesla is dropping prices across the US

Tesla is slashing prices amid slowing demand for cars and the introduction of new electric vehicle tax credits that come with strict price caps. 

The EV giant cut the price of some of its vehicles by up to 20 percent. Tesla dropped the price of its base Model 3 car by $3,000 and slashed the price of the performance model by $9,000. The more expensive Model Y saw its price drop by roughly $13,000.  

The cost of Teslas and most EVs skyrocketed throughout the pandemic as supply chain snags made it difficult for automakers to produce enough vehicles to meet demand. 

But consumers are slowing down their spending, and most Americans can no longer afford EVs, which reached an average price of $66,000 last year, according to Kelley Blue Book. 

Dan Ives, an analyst at Wedbush, said that Tesla’s price drop is aimed at boosting demand and taking even more market share from its competitors, which have slowly been catching up to Tesla.

“This is a clear shot across the bow at European automakers and US stalwarts (GM and Ford) that Tesla is not going to play nice in the sandbox with an EV price war now underway,” Ives said.

Tesla’s price drops are timed around the rollout of new EV tax credits.

The cuts will allow Tesla’s Model Y and Model 3 Performance vehicles to qualify for the EV tax credit, which only applies to cars that cost less than $55,000. 

Consumers will be able to claim a $7,500 tax credit if they purchase their Tesla before March, when the federal government will implement requirements around EV component sourcing that will cut the tax credit in half for Tesla vehicles.

Tesla’s price cuts also come after the automaker fell short of its delivery goal in the fourth quarter of 2022.

Tesla raised its prices several times in recent years amid huge demand and a limited supply of vehicles stemming from the shortage of semiconductors.

Over the summer, Tesla CEO Elon Musk expressed concern that prices were becoming “embarrassingly high” and could price customers out of the market.

“You can’t kind of just raise prices to some arbitrarily high level because you pass the affordability boundary and then the demand falls off a cliff,” Musk said on an earnings call in July. 

Cars are finally becoming cheaper after multiple years of soaring prices. The price of new vehicles fell 0.1 percent in December, while used car prices slipped 2.5 percent, according to Labor Department data released Thursday.