Tesla is slashing prices as it tries to bolster demand

Tesla has cut the prices of most of its electric cars in the United States and Europe by up to 20 percent in an effort to boost sagging demand.

The automaker is facing increasingly fierce competition in the global market for electric vehicles. It also has to contend with rising interest rates in the United States, which have increased the cost of financing vehicle purchases.

“It’s no secret that demand for Tesla is starting to see some cracks in this global slowdown,” Wedbush analyst Dan Ives said in a report released after the price cuts were released.

For some of Tesla’s cheaper models, the cuts put them in range to qualify for $7,500 in federal tax credits that were made available starting Jan. 1 under the Inflation Reduction Act. The credit is available for electric cars priced under $55,000.

Tesla has enjoyed steady and rapid growth over the past decade, but it now has to contend with a variety of challenges, including concerns that its CEO Elon Musk is too busy with Twitter, the social media platform he acquired last year for $44 billion.

Mr. Musk sold billions of dollars worth of Tesla stock to finance the acquisition of Twitter, which drove down Tesla’s share price, and he has come under fire for firing large swaths of Twitter staff. He also aired polarizing political views on the social media platform — including several messages that appeared to support Russia in its war on Ukraine — that hurt his and Tesla’s reputation among some users.

Tesla isn’t alone in dealing with slowing sales. U.S. auto sales are down about 8 percent last year to fewer than 14 million cars and trucks, the lowest level since 2011, mainly because computer chip shortages have prevented manufacturers from producing as many vehicles as consumers want to buy.

Sales of electric vehicles, however, rose 66 percent to more than 808,619, according to Kelley Blue Book, a market researcher. And while Tesla continues to dominate the segment, several automakers are gaining ground. Ford, Volkswagen and several other automakers saw significant increases in EV sales last year and offered many models that were significantly more affordable than Tesla’s. Hyundai and its subsidiary Kia combined sold more than 43,000 electric vehicles in the United States in 2022, up from just a few hundred in 2021.

New contestants are also on the way. Later this year, General Motors is set to start making electric versions of its Chevrolet Silverado pickup truck and the Chevrolet Blazer and Equinox sport utility vehicles.

Tesla also had problems in China, its biggest market, where a local manufacturer, BYD, is now the #1 electric vehicle brand. Tesla recently cut prices in China and reported on total global sales for 2022 this was below analysts’ expectations.

While still hailed for the advanced technology it packs into its cars and their sleek styling, Tesla has been slow to add to its model line. It currently offers only four vehicles, and two are luxury models out of reach for most mainstream consumers. It last introduced a new car in 2020, when the Model Y went into production.

Starting in 2019, Tesla promises to introduce a pickup called the Cybertruck, but has postponed its production several times. The company now hopes to begin doing so later this year. It has an angular, futuristic design and is expected to be marketed as a luxury vehicle, which may limit its appeal.

In December, Tesla began shipping a small number of battery-powered semi-trucks to PepsiCo, its first customer.

By cutting prices on its current models, Tesla is showing it’s willing to allow some profit to increase sales volume. The company typically posts a gross profit margin of 26 percent — more than double that of some rival automakers.

After the price cuts were accounted for, Tesla shares fell more than 2 percent on Friday. The share price has fallen approximately 70 percent since November 2021.

The latest price cut for Tesla vehicles appeared on the company’s website late Thursday. The automaker now shows a high-end Model 3 Performance compact that sells in the United States for just under $54,000, down from $63,000, a 14 percent reduction.

The most affordable version of the Model 3 now sells for just under $44,000, down about $3,000, or 6 percent. The Model Y now starts at $53,000, down 20 percent from the previous price of $66,000.

Tesla sold 1.3 million cars in 2022, a 40 percent increase over the previous year, but below the 50 percent annual growth target the automaker had set for itself. In recent months, rising loan rates have made electric cars more expensive for borrowers.

Tesla’s fourth-quarter production of 440,000 vehicles was 34,000 more than the company delivered, suggesting the sluggishness went beyond supply chain and manufacturing issues.

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