Tesla Inc. has significantly reduced the prices of its top-selling electric vehicles, bringing them in direct competition with gasoline cars in terms of affordability. However, these lower prices could cost the company a staggering $1.2 billion annually, according to a concerned investor.
The base model of Tesla's popular Model 3 sedan now costs $38,990, which is $8,700 less than the average price paid for a car or truck in the US. Additionally, the starting price for the Model Y SUV is $3,700 lower than the average auto price, which is approximately $48,000. This price adjustment marks another strategic move by Tesla to put pressure on traditional automobile manufacturers, who have been struggling to make their electric vehicles profitable.
Sam Korus, an analyst at Ark Investment Management, which holds Tesla stock worth around $1.27 billion, commented, "Now the fun part of cost declines... life after price parity...There is no reason why battery costs or EVs should halt their price declines at price parity. The product can continue to cost less, or it continues to sit in the same price segment and performance improves." Korus believes that the cost of electric vehicles can continue to decrease, while simultaneously enhancing their performance.
Despite the price cuts, Tesla's stock price remained relatively stable. However, these repeated reductions have triggered mixed reactions among investors. Gary Black, managing partner at The Future Fund, criticized the price cuts and estimated that Tesla will face an annual loss of $1.2 billion starting in 2024.
Black, a prominent figure with a large following on social media, has advocated for Tesla to invest in traditional advertising campaigns rather than reducing prices. He expressed his perplexity at some Tesla enthusiasts who spin these recent price cuts as positive developments, stating, "We would prefer Tesla use long-term advertising investment to educate internal combustion engine owners to go EV rather than price cuts."
In terms of direct competition, the starting price of the Model 3 is now $6,500 lower than the cheapest BMW 3 Series, which is often seen as its gasoline-powered counterpart. Furthermore, factoring in the $7,500 federal electric vehicle incentive and fuel savings, the total cost of ownership is equivalent to that of a 2024 Toyota Corolla.
In addition to the base models, Tesla has also significantly reduced the prices of its higher-end vehicles, namely the Model S full-size sedan and Model X three-row SUV. Both currently stand as the most affordable options compared to the US average transaction price. In September, the average price for a new vehicle in the US reached $47,698, according to data from automotive information firm Edmunds.
Critics of Tesla argue that these price cuts reflect the company's struggle to maintain demand, particularly after CEO Elon Musk's acquisition of Twitter Inc. and his increasing involvement with right-wing politics. Ross Gerber, co-founder and CEO of Gerber Kawasaki Inc., a wealth management firm, commented, "Sadly Tesla continues to have to cut prices to sell cars. Piss off core demo and kill margins to unload inventory. The master plan!" Gerber suggests that these price reductions may alienate Tesla's core customer base and harm the company's profitability.