In a move that pits electric cars against their petrol counterparts on price, Tesla (NASDAQ:TSLA) has substantially lowered the prices of its vehicles.
The price reductions could see the company losing up to US$1.2 billion annually, warns Gary Black, managing partner at The Future Fund.
Tesla's Model 3 sedan is now priced at US$38,990, marking an $8,700 difference from the average vehicle price in the United States.
The Model Y SUV, another Tesla offering, now starts at a price $3,700 less than the US average auto price, as per Bloomberg Green's analysis.
Investors remain divided
Investors remain divided on the rationale behind these price cuts.
Some attribute the move to a strategy to maintain demand, especially in light of CEO Elon Musk’s recent acquisition of Twitter, rebranded as X, and his engagement with right-wing politics.
Gerber Kawasaki CEO Ross Gerber suggests that Tesla is compelled to "kill margins to unload inventory."
On the other hand, Sam Korus, an analyst at Ark Investment Management, argues that reduced battery costs should naturally lead to lower vehicle prices, implying that the product "can continue to cost less, or it continues to sit in the same price segment and performance improves."
Shares stable
While Tesla’s share price remained stable last week, these changes have amplified debates among investors.
Black urges Tesla to invest in long-term advertising instead of price cuts, stating that the company should "educate internal combustion engine owners to go EV rather than price cuts".
Interestingly, Tesla's recent price reductions bring the cost of ownership of a Model 3 on par with a 2024 Toyota Corolla when federal EV incentives and fuel savings are factored in.