Tesla has cut its prices on multiple models, with price cuts of up to $5,000 on specific vehicles. The cuts may be an attempt to stimulate demand after the pandemic, but Tesla hasn’t announced an official rationale.
First up, the Standard Range Plus variant of the Model 3 has picked up a $2,000 price cut, dropping from $39,990 to $37,990. The Model S Long Range Plus is now $74,990, a $5,000 reduction from its previous price of $79,990. Both vehicles dropped by ~5-6 percent, so the degree of reduction is equivalent on both cars.
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Similarly, the Model S Performance is now $94,990, and the Model X Long Range Plus is down to $79,990. The only product line that doesn’t seem to have been impacted by price cuts is the Model Y, but that vehicle only recently launched, and cutting its price by $5,000 now would be a slap in the face to people who’ve just recently purchased the car.
The automotive market is currently in bad shape. A report from Meticulous Research suggests that the Covid-19 pandemic could knock 12-15 percent off the global automotive industry in 2020. Industry tracker ALG believes May 2020 vehicle sales will be 21 percent below May 2019. Include the impact of reduced fleet sales, and the decline is larger, down an estimated 32 percent from last year.
So, should we all expect great deals? Unclear. Hertz’s recent bankruptcy could flood the market with used vehicles because the company has already stated it intends to begin some fleet liquidation as part of its Chapter 11 proceedings. If buyers head for used vehicles instead of new ones, we could see more manufacturers offering aggressive discounts to move new vehicles.
As for Tesla, specifically, opinions are divided. Some investors think this is a sign of improved profitability at Tesla thanks to larger economies of scale and that the company has the room to cut prices and attempt to stimulate demand. Those who are more bearish on Tesla see the move as intended to ward off a potential demand cliff. I’m scarcely an automotive analyst, but judging by the reports coming out of the industry, you don’t have to be to see that manufacturers are spooked by the idea of a long-term decline in car-buying thanks to COVID-19. That’s the kind of cliff that every manufacturer could fall off, not just Tesla. If car sales don’t pick up in the near future as the economy reopens, auto manufacturers may face serious problems in the months ahead.
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