Tesla’s Price Cuts Appear to Be Having a Major Unintended Consequence
A leader in the EV space, Tesla currently offers four different model options to consumers, including the Model S, Model 3, Model X, and Model Y. Despite Tesla’s limited number of models, the company remains a clear frontrunner. In order to maintain its status, Tesla recently implemented a new price-cut strategy in order to entice new consumers to embrace the EV experience. However, this new strategy has led to some unintended consequences for the American automotive company. Here’s a look at the consequences of Tesla’s price-cut strategy.
Recent price cuts have led to increased sales growth for Tesla
There’s no denying that the auto industry has faced a rough few years, from supply chain issues to inflation woes. According to TechCrunch, to help rectify these issues, Tesla began slashing prices on its new EV models in the fall of 2022. While some speculated that price cuts would end by the new year, this theory was put to bed when Tesla started slashing prices by as much as 20% in January 2023.
In the spring of 2023, Tesla continued with its price-slashing strategy as it lowered the price of both of its higher-end models, the Model S and Model X, by another $5,000 each. Of course, the primary reasons for Tesla’s price-cutting strategy are to bring in more buyers and be more affordable than the competition.
In addition, Tesla also slashed its prices to rectify the fact that the U.S. government has tightened its requirements to qualify for the $7,500 EV tax credit. With many consumers losing out on this federal tax credit, Tesla’s decision to slash its prices helps to offset this difference.
A look at how the used EV market has been impacted by these price cuts
The initial results of Tesla’s price-cutting strategy look pretty good. According to GoodCarBadCar, year-over-year sales growth is significant when it comes to the Tesla Model 3 and the Tesla Model Y. The data shows that the Model 3 saw a growth of 49,900 units sold during Q2 2022 to 58,500 units sold during Q3 2022. Even more impressive, the Model Y saw a growth of 53,000 units sold in Q2 2022 to 105,499 units sold during Q2 2023.
While this seems great on the surface, the unintended consequence is that EV sales in the used car market have dropped significantly in correspondence with Tesla’s price slashing on its new year models. According to iSeeCars, the prices of used electric vehicles have dropped by nearly 30% from Q2 2022 to Q2 2023.
Without acknowledging the impact of Tesla’s price-cutting strategy, this decline would be quite shocking, considering that the overall prices in the used car market have stabilized over the last year. Compared to the average used vehicle, used EV prices are falling at nearly 10 times the rate based on the data collected from iSeeCars.
More consumers now have the opportunity to buy a brand-new EV
While the data indicates that the used EV market is struggling, Tesla’s price-cutting strategy has allowed more consumers than ever before the opportunity to buy a brand-new EV. However, these pricing changes have also brought to light the instability of the EV market and the shifting supply and demand issues that may prove more problematic in upcoming quarters.
Despite used EVs becoming more affordable to the majority of consumers through the recent price drops, many of these consumers are still not ready to go fully electric with the lack of electric infrastructure throughout the continental United States coupled with the many uncertainties that still exist with the practicality and longevity of EVs. Only time will tell the long-term effect of Tesla’s price-cutting strategy.