After the latest round of price cuts, Tesla's (TSLA.US) best-selling electric vehicle is now directly competing on price with its gasoline-powered counterparts. At least one investor said the price cuts could cost the company $1.2 billion a year. The base Tesla Model 3 sells for $38,990, which is currently $8,700 less than the average price of a car or truck in the United States.
According to analysis by BloombergGreen, the starting price of Model Y is US$3,700 lower than the average car price of approximately US$48,000. Tesla began cutting prices early this year, putting pressure on traditional automakers already struggling to make electric vehicles profitable.
"What's interesting about the cost decline now is ... what happens after price parity," said Sam Korus, an analyst at Ark Investment Management, whose funds hold about $1.27 billion in Tesla shares. Korus said: "There is no reason to think that battery costs or electric vehicles should stop falling in price at price parity. The product can continue to reduce costs, or it can continue to stay in the same price range while improving performance."
While last week's price cuts had little impact on Tesla's stock price, this year's price cuts have already ruffled feathers among some investors. Gary Black, managing partner of The Future Fund, said last week's changes alone will cost Tesla $1.2 billion annually starting in 2024.
Black advocates Tesla spending money on traditional advertising campaigns rather than cutting prices. "I'm surprised that Tesla's super bulls are trying to frame the price cuts as a positive," Black said. "We would rather Tesla use its long-term advertising investment to educate (internal combustion engine) owners to switch to electric vehicles rather than lower prices."
Currently, the starting price of Tesla Model 3 is $6,500 lower than the cheapest BMW 3 Series, which is generally regarded as the most direct fuel vehicle competitor of Tesla sedans. Combined with a $7,500 federal EV subsidy and fuel savings, the cost of ownership is comparable to a 2024 Toyota Corolla.
Tesla has also lowered the prices of its high-end Model S full-size sedan and Model In September, the base price of a new car in the United States was $47,698, according to automotive information company Edmunds.
Some believe Tesla's price cuts are the price to pay to boost demand following CEO Elon Musk's acquisition of Twitter (now Company X) and his increasing involvement in right-wing politics.
Ross Gerber, co-founder and CEO of wealth management firm Gerber Kawasaki, said: "Sadly, Tesla has to continue to sell cars at lower prices, annoy core customers and kill profit margins to reduce inventory."