Tesla Inc.’s best-selling electric vehicles now compete directly with gasoline cars on price after the latest round of price reductions. Lower prices could cost the company $1.2 billion a year, according to at least one investor.
At $38,990, the base Model 3 sedan now costs $8,700 less than the average amount paid for a car or truck in the United States. The starting price of a Model Y SUV is $3,700 below the average car price of about $48,000, according to a Bloomberg Green analysis. Tesla began cutting prices at the beginning of the year, twisting the screws on traditional automakers that were already struggling to make electric vehicles profitably.
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“Now for the fun part about falling costs…life after price parity,” said Sam Korus, an analyst at Ark Investment Management, which manages funds with about $1.27 billion in Tesla shares. “There is no reason why the costs of batteries or electric vehicles should stop their prices from falling at price parity. The product can continue to cost less or remain in the same price segment and performance improves.”
While Tesla’s stock price was little changed by last week’s cuts, the pace of this year’s reductions has driven a wedge among some investors. Gary Black, managing partner of The Future Fund, said last week’s changes alone will cost Tesla $1.2 billion a year starting in 2024.
Black has used his widely followed X social media account to advocate for Tesla to spend money on traditional advertising campaigns instead of price cuts. “I’m surprised that Tesla bulls are trying to turn last night’s price cuts into a positive,” Black posted on October 6. “We would prefer Tesla use long-term advertising investments to educate (internal combustion engine) owners to leave.” Electric vehicles instead of price cuts.”
The Model 3’s starting price is now $6,500 less than the cheapest BMW 3 Series, which is often considered the most direct competitor to the gasoline-powered Tesla sedan. Adding a $7,500 federal EV incentive and fuel savings puts the cost of ownership on par with a 2024 Toyota Corolla.
Tesla has also lowered the price of its high-end vehicles, the Model S full-size sedan and the Model X three-row SUV, both of which are cheaper than ever compared to the average transaction price in the United States. In September, that benchmark price for a new vehicle in the United States was $47,698, according to automotive information firm Edmunds.
Some see Tesla’s price cuts as the cost of shoring up demand after CEO Elon Musk’s acquisition of Twitter Inc. (now X Corp.) and his growing commitment to right-wing politics.
“Unfortunately, Tesla continues to have to reduce prices to sell cars,” said Ross Gerber, co-founder and CEO of wealth management firm Gerber Kawasaki Inc. “It pisses off the core demo and eliminates margins to unload inventory. The master plan!”
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