After slashing prices for its cars earlier this month, Tesla said this week that it’s going to continue improving the affordability of its electric vehicles.
A Wednesday statement from the company said its car prices are on a downward trajectory and improving affordability is “necessary to become a multi-million vehicle producer.”
The statement came two weeks after Tesla announced a dramatic cost reduction for its vehicles, slashing prices for certain models up to 20%. The price cuts allowed some of its cars to qualify for a federal electric vehicle tax credit and helped drive demand in January.
“Price really matters,” CEO Elon Musk said during a Wednesday earnings call. “There’s a vast number of people that want to buy a Tesla car but can’t afford it. So these price changes really make a difference for the average consumer.”
Reactions to the price cuts have been mixed. While they could curb used Tesla prices and pressure other EV manufacturers to make their vehicles more affordable, the cuts were an unwelcome surprise to many Tesla owners who are seeing their resale values plummet.
Tesla resale values
“People want to know how does (the price drop) affect me as the current owner? And of course the answer, unfortunately, is negatively,” said Ivan Drury, director of insights at Edmunds. “If you have recently bought one, even if it’s last month or even last year, you’re going to feel the repercussions of decreased residual value.”
Jason Diaz had been driving a brand-new Tesla for just three months when the company announced its price cuts on Jan. 13.
The starting price for the Model Y Performance, the vehicle Diaz owns, fell about 19% to $56,990. Diaz figures he could have saved thousands if had waited just a few more months to buy the vehicle – money he says could have gone toward his kid’s college fund.
The Austin, Texas native said he’s aware resale values fall as soon as a car is driven off the lot, but he can’t help but feel miffed that Tesla’s price cuts likely made the value fall even further.
“This hurt enough that it would make me reconsider, for my next car, would I get another Tesla?” Diaz said.
He plans to sell his Model Y after three years, but keeping the vehicle longer could help lessen the blow of the price drop.
“The longer you have it, the more miles and older it is, those price fluctuations tend to just mitigate themselves,” said Jessica Caldwell, Edmunds’ executive director of insights. If “you only want to keep it for a few years, that plan may have to change if you want to make a smarter financial decision.”
How does this affect used Tesla prices?
As for potential buyers, Tesla’s price cuts could help make both new and used EVs more affordable.
“It just stands to reason that when you significantly reduced the prices of your new cars, it’s going to reduce the price that people are willing to pay in the open market for the used cars,” said Brian Moody, executive editor for Kelley Blue Book.
Dink Davis, owner of pre-owned EV dealer iDrive1 Motorcars in Texas, said used Tesla prices have been falling since the summer. Tesla’s price cuts likely forced dealers across the country to slash prices even further.
“I’m getting them cheaper than I ever have in the past two years,” Davis said.
Moody said if you’re interested in a Tesla, now may be the right time to buy. Edmunds reported that search interest for Tesla vehicles jumped after the price cuts.
“If you’ve always wanted one, now’s the time to go out and try it,” he said. For those open to other EV brands, “there’s (other models) that will be coming. It might be wise to take a second and just say, ‘Let’s see how this plays out in the marketplace.'”
What is the cheapest Tesla?
Here’s where Tesla prices stand today. (The price for the Model Y recently went up $500, with the company citing high demand.)
- Model S: $94,990
- Model S Plaid: $114,990
- Model 3: $43,990
- Model 3 Performance: $53,990
- Model X: $109,990
- Model X Plaid: $119,990
- Model Y Long Range: $53,490
- Model Y Performance: $56,990
The potential for an EV price war?
Tesla’s cost reduction plans may not necessarily mean another major price cut in the near term, but it could lead to costs dipping over time, according to Moody.
“There’s a lot of demand for Tesla cars, but a lot of people aren’t buying them simply because they can’t afford it,” he said. As you reduce costs, “it’s probably likely that the prices of the cars are going to come down over time.”
Tesla’s focus on improving affordability could pressure other brands to trim their own EV costs.
“It has to affect what other people are doing. It just has to,” Moody said. “Other makers of electric cars in the same price range will definitely have to reassess where they are in the marketplace and what makes sense in terms of their pricing strategy going forward.”
Drury added that more EV competition down the line could “spur more price wars.”
“We’ll have to see what happens with the rest of the industry and how they react,” he said.
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