Winter tends to arrive this time of year, but don’t tell Elon Musk.
The Tesla CEO slashed the price of his Model Y by $1,000, blaming falling temperatures. The crucial crossover accounts for two out of every three cars the company sells globally, and any material weakening in demand could jeopardize its already tepid Tesla lineup. . Guidance for this year.
The latest in a series of price cuts chain damage Now, the Tesla Model Y’s starting price has dropped to $42,990, and federal tax credits can shave up to $7,500 off the sticker price of electric vehicles.
“Since most people don’t like buying cars in the middle of winter, Tesla is offering a $1,000 bonus,” Musk posted on social media. Sundayfound a new excuse for discounts.
All automakers competing in the U.S. market are naturally affected by the same conditions, and the onset of winter is one of them. However, there is one weather-related factor that is certainly working against Tesla’s demand as the domestic EV leader.
A slew of headlines warned potential car buyers that a January cold snap, which sent temperatures plunging across much of the country, could quickly drain electric vehicle batteries, significantly reduce driving range and cause EV charging stations to malfunction.
Tesla claims this specific discount is only valid for to february, but there is absolutely nothing requiring it to do so. As long as his older Model Y lacks an updated version expected to go on sale in the U.S. next year, there’s really only one potential catalyst that could push prices higher: a Federal Reserve interest rate cut.
Musk’s decision to continue cutting spending is likely to reignite a nearly year-long debate over whether repeated discounts, punctuated by occasional token hikes, should be the only lever to stimulate demand.
Critics believe Musk has trapped Tesla in a vicious cycle by training consumers to delay purchases in the hope of getting a better deal in the future. Instead, they think he should finally put down his arrogance and embrace advertising rather than vilify it.
30-second Super Bowl ad sells for $7 million $Tesla 875 incremental cars must be sold (gross profit of $8,000 per car) to justify the advertising costs. The follow-on interest in Tesla paying for a Super Bowl ad will be huge.instead $Tesla The price of each Model Y in the United States is reduced by $1,000… https://t.co/ZrqxUpRCcB
— Gary Black (@garyblack00) February 12, 2024
Why you don’t hear too many price cuts from competitors
That’s not to say traditional automakers won’t do the same thing by pulling price levers. They’re just better at hiding it.
In the past, existing brands have often resorted to blunt tools like direct cash rebates—GM’s employee discount offered to every car buyer is one of the industry’s best-known examples.
In the 2010s, however, they increasingly resorted to more subtle ways of cutting prices. This often involves subsidies to dealers, who in turn can choose to pass these savings on to their customers. This makes slower-selling models more affordable without triggering an across-the-board drop in resale value to the detriment of existing owners.
Tesla doesn’t have this option because they don’t have franchised dealers and only have one standard price across markets like the US or Germany.
Another reason why Tesla discounts are easier to spot is that its product range is limited, with only five electric vehicle nameplates, including the new Cybertruck. That’s the same number of electric vehicles as Mercedes-Benz and just one more than the BMW brand, both of which have a full lineup of combustion-engine vehicles.
The Model Y is also undoubtedly the most eye-catching, as its 1.2 million sales helped it become the world’s best-selling car last year. The other four models combined accounted for just one-third of the brand’s 1.8 million sales last year.
Every other American new car buyer can afford a Model Y
Throughout last year, Musk repeatedly denied that Tesla was now constrained by demand, saying there was a large queue of consumers waiting to order the Model Y once they could finally stretch their budgets.
But industry data shows that the average price of a new non-luxury brand car in December was $45,283, even higher than the price of the Model Y last week. That means one out of every two American car buyers can afford his crossover—they just don’t.
The problem is that, according to Musk’s own figures, his four car factories can currently produce more than 2.35 million vehicles per year. Therefore, in order to keep factories running at full capacity, car sales must increase by about 30% this year.
Adding to the pressure in the pipeline is his Model Y factory in Germany, which can produce 375,000 cars a year but is nowhere near that number. The Greenheide plant, an hour’s drive from Berlin, suspended its assembly lines on Jan. 29 after shipping attacks near the Suez Canal left parts stranded.
They resumed operations on Monday, local media reported, despite speculation that they had resumed operations Adequate inventory Still for sale.
Musk indirectly acknowledged that his company’s expansion was actually moving too fast, and that the number of people who wanted a Tesla was, in fact, limited — at least for now.
“This is the fundamental dilemma of manufacturing: Factories need continuous production to be efficient, but consumer demand is seasonal,” he complained on Sunday.
This may help explain why Tesla has been delaying construction of its Mexican factory.