Tesla cuts prices by up to a fifth First in China, Now In US and Europe

Tesla has reduced the cost of its vehicles by up to a fifth in the US and Europe as it battles waning demand and heightened competition.

The market is uncertain how to interpret actions like Tesla’s significant price reductions, first in China and then on January 13 in the U.S. and Europe, given that the economy is at a crossroads between dissipating inflation fears and widespread expectations of a recession starting in 2023.

Tesla’s stock fell 4% in pre-market trading as a result of the decision, which came after CEO Elon Musk issued a warning that lower pricing may be necessary to maintain volume growth at the expense of profit due to the possibility of a recession and higher interest rates. Since 2022 began, shares have decreased by 65% which has in turn displaced him as the world richest

In Europe, Austria, France, Germany, the Netherlands, Norway, Switzerland, and the United Kingdom all saw price reductions on Tesla’s Model 3 and Model Y automobiles.

Reuters reported that in Germany, Tesla cut prices on the Model 3 and the Model Y from 1% to around 17%, depending on the configuration. Tesla’s Model 3 was the bestselling electric vehicle in Germany in December 2022, followed by the Model Y. The company beat out Volkswagen and its popular electric vehicle the ID.4 in Germany.

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However, the price reductions may help Tesla qualify for additional federal EV tax credits and boost sales volume both domestically and internationally when competition and financing rates rose.

According to CNBC.com, The “first EV recession” theme comes with a big if – that there is a recession in the first place, either here or in China, where Tesla sales dropped 44 percent in December from November levels as the government there continued struggling to contain Covid-19. 

In the U.S., most economists and CEOs think a recession is likely this year, though the market gains of the last week may reflect the beginnings of a change in the investor outlook, with more believing in the “soft landing” narrative for the economy. One holdout, Moody’s Analytics chief economist Mark Zandi, forecasts a months-long “slowcession” where growth doesn’t quite turn negative. Either scenario would likely hurt car sales in general, which were the worst in a decade in the U.S. last year, but where some auto executives are now slightly more confident about a rebound, though the EV outlook among the automakers has become more cautious in the short-term.

For a US customer purchasing the long-range Model Y, the new Tesla price plus the US subsidies equals a 31% reduction.

To encourage consumers to take delivery before the end of the fourth quarter, Tesla reduced the price of its Model 3 and Model Y automobiles by around $7,500 in late December.

The five-seat Model Y was not eligible for that credit prior to the price drop, a decision Musk called “messed up.”

People who may have previously been priced out of the market may now be able to afford EVs thanks to the price reductions.