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Tesla Announces Price Cuts on Model 3 and Model Y Following Delivery Shortfalls

Tesla has just said they’re slashing prices for their Model 3 and Model Y cars in the U.S. Guess why? They’ve had a bit of a hiccup with their delivery figures – didn’t quite hit Wall Street’s predictions for the third quarter. In fact, Tesla, which happens to be the top-dog automaker in terms of worth on a global scale, tells us that they could only manage third-quarter deliveries of a measly 435,059 vehicles. That’s not as good as before—bummer. Apparently, all this is down to them sprucing up their factories which meant some pretty significant downtime at their manufacturing plants.

The company’s ambitious goal aims to achieve the delivery of 1.8 million vehicles for the year 2023. With these recent delivery figures, the pressure mounts for Tesla to hand over approximately 476,000 vehicles in the final three months of 2023.

The Specifics of the Price Adjustment

As per the adjustments on Tesla’s official website:

  • The standard Model 3 sedan is now priced at $38,990, down from its previous tag of $40,240. This presents a reduction of $1,250.
  • The long-range variant of the Model 3 is now available at $45,990, showing a decrease from the former $47,240 price.
  • The Model 3 Performance edition has seen a price drop to $50,990 from its earlier $53,240.
  • Regarding the Model Y Performance SUV, its starting price is now $52,490, down from the prior $54,490.

Over the course of the year, Tesla’s adjustments have resulted in a price decrease of roughly 17% for the standard Model 3 and an over 26% reduction for the Model Y.

Rationale Behind Tesla’s Pricing Strategy

As we kicked off the tail end of last year, Tesla started gradually slashing its car prices across the globe. This strategic move was driven by rising worries about a slowdown in consumer spending, particularly in key markets such as the U.S. and China. Not only that, but it was also a smart way to tackle increasing rivalry in the electric vehicle industry. CEO Elon Musk has been forthright about Tesla’s direction, emphasizing the company’s shift towards prioritizing volume over increased profit margins. As he mentioned in July, “I think it does make sense to sacrifice margins in favor of making more vehicles.”

Market Reactions and Implications

Following the announcement of the price reductions:

  • Tesla’s shares experienced a dip of 2.1%, influenced by overarching market weaknesses and concerns that the price cuts might impact the company’s industry-leading margins. Notably, these margins had already touched a nearly four-year low in the quarter spanning April to June.
  • Analysts anticipate that these cuts could amplify pressures on the “Detroit Three” as they grapple with a unique strike led by the autoworkers’ union. Any forthcoming contract with this union might result in a significant surge in costs, positioning non-unionized automakers like Tesla and Japan’s Toyota at a potential advantage.

It is essential to note that despite the recent setbacks and strategic shifts, Tesla remains optimistic about achieving its 2023 targets. The company reiterated its commitment in a recent statement, mentioning, “A sequential decline in volumes was caused by planned downtimes for factory upgrades, as discussed on the most recent earnings call. Our 2023 volume target of around 1.8 million vehicles remains unchanged.”

A Deeper Dive into Tesla’s Strategy

Since its inception, Tesla has continuously redefined its operational and market strategies to keep pace with the rapidly changing industry. The price cuts are just one aspect of this larger paradigm. The intention behind these cuts isn’t just about stoking demand, but also a calculated move to remain competitive against traditional automakers transitioning to EVs. Companies like Ford and global competitors, including China’s BYD, are vying for a significant share of the market.

Upcoming Key Dates

Investors and market enthusiasts are keenly eyeing Oct. 18, when Tesla is slated to report its third-quarter earnings. According to predictions made by analysts associated with Visible Alpha, Tesla is likely to record automotive gross margins of 19.1% for the quarter. This potential figure stands in stark contrast to a past record margin that exceeded 32% in the first quarter of the previous year.

Historical data emphasizes the dynamism inherent in the automobile industry, especially within the electric vehicle (EV) segment. Tesla, being at the forefront of this evolution, has experienced ebbs and flows in both market dynamics and consumer preferences. Read more here.