Winter tends to come around this time every year, but don’t tell Elon Musk.
Tesla’s CEO blames the onset of colder temperatures for a $1,000 discount on the price of his Model Y. The vital crossover is responsible for two out of every three cars his company sells worldwide and any substantial weakening in demand could jeopardize its already lukewarm guidance for this year.
The latest in a series of price cuts that have caused cascading damage The reduction in the value of used Teslas now reduces the Model Y’s starting price to $42,990, before a federal tax credit that can shave up to $7,500 off the sticker price of electric vehicles.
“Since most people don’t like to buy cars in the middle of winter, Tesla is offering a $1,000 incentive to do so,” Musk posted on Sundaydiscovering a new excuse to make discounts.
Naturally, all automakers competing in the U.S. market are subject to the same conditions, including the arrival of winter. However, there is one weather-related factor that certainly did not help Tesla’s demand as a national leader in electric vehicles.
A series of headlines warned potential car buyers that the January cold snap that sent temperatures plummeting across much of the country could quickly drain electric vehicle batteries, significantly reduce range and cause vehicles to malfunction. electric vehicle charging stations.
Tesla claims that this particular discount will only be valid until February, but there is absolutely nothing that forces you to do it. While its aging Model Y lacks a facelifted version, which is speculated to arrive in the United States next year, there is really only one potential catalyst that could push prices higher: an interest rate cut from the Federal Reserve.
Musk’s decision to continue cutting threats threatens to reignite a nearly year-long debate over whether repeated discounts, occasionally punctuated by a token increase, should be the only lever to stimulate demand.
Critics argue that Musk has trapped Tesla in a vicious cycle by training consumers to postpone their purchase in hopes of getting a better deal in the future. Instead, they believe he should finally come down from his stance and embrace publicity instead of stigmatizing it.
At $7 million for a 30-second Super Bowl ad, $TSLA You would have to sell an incremental 875 cars ($8K gross profit per car) to justify the cost of the ad. And the follow-up interest in TSLA paying for a Super Bowl ad would be huge. Instead $TSLA reduces price by $1,000 for Model Y in the US… https://t.co/ZrqxUpRCcB
—Gary Black (@garyblack00) February 12, 2024
Why you won’t hear much about price cuts from your rivals
This isn’t to say that traditional automakers don’t do exactly the same thing when pulling the pricing lever. They just got better at hiding it.
In the past, traditional brands too often resorted to the blunt tool of cash back: GM, which extends its employee discount to all car buyers, is one of the industry’s most (in)famous examples.
However, in the 2010s they took an increasingly stealthy approach to price cuts. This typically involved subsidies to their distributors, who in turn could choose to pass these savings on to their customers. This made slower-selling models more affordable, without causing a widespread, flat drop in resale value that would hurt existing owners.
Tesla does not have this option because it does not have franchised dealers and there is only one harmonized standard price in an entire market such as the United States or Germany.
Another reason the discount is much easier to spot with Tesla is its limited product range, with only five EV nameplates, including the new Cybertruck. That’s the same number of electric vehicles as Mercedes-Benz and just one more than the BMW brand, which also has a full line of combustion engine cars.
The Model Y is also easily the most visible, as its 1.2 million units helped it become the world’s best-selling car last year. The other four models together only accounted for a third of the brand’s 1.8 million volume last year.
Every other American new car buyer can afford a Model Y
Over the past year, Musk has repeatedly dismissed the notion that Tesla now has limited demand, saying there is a whole cohort of consumers waiting to order a Model Y once they can finally stretch their budget.
But industry data shows that the average price paid for a new car made by a non-luxury brand was $45,283 in December, comfortably higher than the price of the Model Y even last week. That means one in two American car buyers can afford their crossover; They just don’t buy them.
The problem is that Musk’s four auto plants can currently make more than 2.35 million vehicles a year, according to his own figures. So to keep its factories running at full capacity, it would have to sell about 30% more cars this year.
Adding to the pressure building on the pipeline is its Model Y plant in Germany, which can make up to 375,000 cars a year, but has not come close to that figure. The Grünheide facility, located an hour’s drive from Berlin, stopped its assembly line on January 29, blaming the stoppage on parts held up due to maritime attacks near the Suez Canal.
They resumed operations on Monday, local media reported, despite speculation that they had already done so. a lot of inventory continue selling.
Musk indirectly admitted that he had, in fact, proceeded too quickly with the expansion of his company, and after all, there is a limit to how many people want a Tesla, at least for the moment.
“This is the essential dilemma of manufacturing: Factories need continuous production to be efficient, but consumer demand is seasonal,” he complained Sunday.
This could help explain why Tesla has been delaying construction of its plant in Mexico.