Tesla’s shares dropped by almost 4% on Friday following a new round of price cuts in the United States and the Chinese government’s decision to not permit Tesla to expand its Shanghai Gigafactory. The price reductions come amid concerns from Wall Street that the cuts may be a response to a decrease in consumer demand for Tesla vehicles. This recent round of cuts comes a week after Tesla lowered prices by up to 13% in China following a decrease in sales of its Shanghai-built vehicles in December.
The company has reduced the price of its base Model Y crossover by nearly 20% to $52,990. This move will likely help maintain sales volume, as it enables customers to qualify for federal tax incentives, which apply to electric vehicles that cost less than $55,000. Tesla also cut the price of its high-performance variant of its Model 3 sedan by 14% to $53,990, again allowing buyers to benefit from the tax incentive.
In addition to price cuts in the US, Tesla has also reduced prices in Europe. In Germany, prices for Model 3 and Model Y have been decreased by up to 17%, and in the UK, the Model Y price has dropped to £44,990 from £51,990. In Italy, prices have fallen by up to 22%, and in France, the Model 3 now sells for €44,990, which is below the government’s €47,000 price cap for incentives, resulting in a €5,000 reduction in price.
Although Tesla’s demand is increasing in Europe, the US and China account for 75% of the company’s sales. The cuts come as more electric vehicles are entering the US market from other car manufacturers, all of which have newer models and designs than Tesla. The price cuts could be seen as an acknowledgement that Tesla is planning to fight to maintain its decreasing market share in an effort to remain the world’s top EV seller.
Tesla accounted for 65% of EV sales in the US market last year, with EVs comprising 5.8% of the overall market. However, Tesla’s market share in 2022 was down from its 2021 share of 72%, indicating that new EV competitors are having an impact. Both the Model 3 and Model Y are Tesla’s best-selling vehicles in the US, and the company’s highest volume vehicles. Tesla sold 491,000 vehicles in the US in 2022, which is a 30.5% increase from the 340,800 units sold in 2021. The Model Y was the company’s most popular vehicle, selling 231,400 units, followed by the Model 3 at 198,200, the Model S at 37,300 and the Model X at 24,100.
In addition to concerns about market share, Wall Street is also worried about Tesla’s market share in China. A planned expansion of Tesla’s plant in Shanghai, which produces the Model Y and Model 3, is being delayed as central government officials are concerned about the large presence of a US corporation with ties to Elon Musk’s Space Exploration Technologies Corp in China’s economy. The Starlink technology, which would allow users to bypass China’s Great Firewall, is not present in Tesla automobiles, but Beijing is becoming increasingly anxious about data security and social stability. The plant has the capability to produce up to 1 million units annually and manufactured more than 710,000 units last year, accounting for 52% of the company’s annual production.
