How Tesla Takes the Air Out of Everyone Else With Its Price Discounts

Quite a few people are currently having gasping breath. It has nothing to do with COVID or other respiratory diseases in the cold winter weather, but with the price reductions that Tesla has made quite surprisingly. Tesla has reduced the price for some variants of the Model Y and 3 by up to 20 percent. The European prices look like this:

Tesla Model	Old Price	New Price	Discount
Y: Single Motor Short Range	€61.990	€50.990	18%
Y: Dual Motor Long Range	€65.990	€52.990	20%
Y: Dual Motor Performance	€69.990	€56.990	19%
3: Single Motor Short Range	€49.990	€43.990	17%
3: Dual Motor Ling Range	€59.490	€53.990	9%
3: Dual Motor Performance	€63.490	€60.990	4%

Those customers who have just bought a vehicle are the first to be left breathless. In China, Tesla stores have already been stormed by angry customers who are now demanding a subsequent price reduction. Customers who had previously flirted with a Tesla are now rushing to the Tesla website after a moment of shock and placing an order.

But there is one group that has been left out in the cold: the competition. Three weeks ago, YouTuber Farzad Mesbahi speculated on the extent to which the Ford Mach E or the Ioniq 5 would be competitive if Tesla were to lower the price in addition to the $7,500 tax rebate that is now once again available to Tesla in the US. And Tesla could, thanks to its much higher profit margin. For example, according to Mesbahi, the Ford Mach E and Ioniq 5 give their manufacturers a profit margin of four percent, while the Model 3 and Y have one of 18 percent. A reduction of another $7,500 would make the Model 3/Y cheaper than the Ford Mach E, and bring it into the price range of the Ioniq 5. And that’s with longer range, better software and performance.

What looked like an unlikely scenario three weeks ago has now become reality. And with it, Tesla has given the competition a nasty New Year’s treat. Tesla is currently able to easily meet demand thanks to its now steadily increasing capacities and the output from the Gigafactorys, while the others are still struggling with the aftermath of the supply chain problems and are trying to catch up with Tesla. Some problems are homegrown. VW, for example, is still struggling with software problems and the anger of disappointed customers is expressing itself ever more loudly.

Tesla is cutting off the competition with these price reductions. It is not so much a sign of difficulties with sales, as many interpret this move by Tesla, but rather a sign of strength that the company now has sufficient manufacturing capacity, projected capacity increases and the profit margin to be able to take such a measure, which is extremely painful for the competition.

It will be interesting to see how they react. In any case, it doesn’t have much room for maneuver. In view of the rapidly declining sales of gasoline and diesel vehicles, their sales revenues are no longer available to the extent necessary to cross-subsidize price reductions for Tesla’s own electric vehicles.

Update: YouTuber Farzad Mesbahi followed up and looked at price reductions to calculate production increases, inventory and expected profit for the first quarter of 2023. Bottom line: compared to other manufacturers, Tesla has the lowest inventory, half that of industry leader Toyota. Thus, Tesla does not have a demand problem. And the profit in Q1/2023 will probably be in a similar range as in Q3/2022. Why this is so is well illustrated in the video.

This article was also published in German.