Tesla’s Model Y, the electric-car maker’s top seller, and versions of its other cars and crossovers are getting pricier in the wake of CEO Elon Musk’s warning of a “tough quarter,” a period that includes slumping production in China due to strict Covid rules, job cuts and a sharp drop in the value of its shares.
The base version of the Model Y jumped by $3,000, or 4.8% this week, to $65,990 from $62,990. Add a color other than Pearl White or Silver Metallic, Tesla’s controversial “Full Self Driving” option and taxes and customers will be spending more than $80,000. While the cheapest Model 3 sedan was unchanged at $46,990, the Long Range version of the car went up by $2,500 to $57,990. The Model X SUV jumped $6,000 to $120,990 and the Model S sedan now costs $104,990, up $5,000 from $99,000.
Tesla routinely changes its vehicle pricing, seldom explaining why. In this case, the costs of raw materials for batteries, aluminum, steel, as well as supplies of semiconductors, have created headaches for all automakers. The brand’s strong appeal to higher-income consumers suggests the price increases won’t likely repel too many buyers.
“The brand does attract a well-heeled audience, evidenced by the fact that Model Y, which had a base MSRP of just under $63,000 until this week, sold nearly 200,000 units last year,” says Ed Kim, president of industry researcher AutoPacific. “That’s remarkable as no other SUV at similar price points comes remotely close to selling at those volumes. Tesla so far has had little trouble continuing to dominate the EV space and finding huge numbers of customers willing to spend significant money for their products.”
The pricing moves come as the Austin, Texas-based company winds down a rocky second quarter in which Musk simultaneously moved to acquire Twitter, became openly politically partisan and announced plans to eliminate about 10% of salaried jobs at Tesla and require staff to stop working remotely. The company also lost considerably more production at its Shanghai plant than Musk anticipated two months ago and saw auto sales in China temporarily tank.
Draconian public health rules intended to stop the spread of the coronavirus that began in late March continued to temporarily idle Tesla’s factory at the beginning of April and held production well below its capacity through May. Output may return to about normal this month, though the plant will likely produce just 115,300 units in the quarter, down from 178,887 in the year’s first three months, according to Reuters, citing data from the China Passenger Car Association. It’s unclear whether the slowdown in China will result in a significant drop in revenue from the year’s first quarter as the company is also ramping up production at new plants in Berlin and Austin. If it does, however, it would be Tesla’s first sequential decline since 2019’s third quarter.
“Given the extraordinarily high dependence of Tesla on China production (>40% of global production) and profitability (we estimate well over 50% of Tesla profit from China), the disruption from local Covid lockdowns is understandable, if not fully in consensus forecasts at this time,” Morgan Stanely analyst Adam Jonas said in a research note this week. “But as Tesla has shown throughout its history, it can make up substantial lost ground with accelerated deliveries into the close of a quarter where disproportionate amounts of a full quarter’s production can occur in the final week or two. Additionally, what may be lost in 2Q could just provide pent-up sequential tailwinds for 3Q results.”
Separately, Tesla also stood out in new data released by the National Highway Traffic Safety Administration this week showing the company’s vehicles with Autopilot accounted for 70% of 392 crashes in the past 11 months involving cars and trucks equipped with partially automated driving features.
Recession concerns, recently fanned by Musk in leaked memos, have also hit the company this quarter, contributing to a 41% drop in the value of its shares since March 31. Tesla fell 8.5% to close at $639.30 in Nasdaq trading Thursday, cutting the fortune of Technoking Musk, the world’s richest person, by $14.2 billion.
Currently, the average electric vehicle sells for $64,388 in the U.S. compared with an average transaction price of $47,148 for all new cars and trucks, according to Kelley Blue Book. That higher EV price already reflects Tesla’s dominance of that market, says Michelle Krebs, executive analyst for Cox Automotive.
“The No. 1 obstacle on the path to EV adoption is vehicle price, according to our surveys,” says Krebs. “However, I’m not sure that applies to Tesla buyers. They are a unique bunch. They generally don’t shop around. They simply want a Tesla.”
Tesla’s price increases, particularly for Model Y, could lead some potential buyers to consider electric rivals including Ford’s Mach-E crossover, starting at $43,895, Hyundai Motor’s Ioniq 5, priced from $39,990 and Kia’s EV6 with a base price of $40,900. The three models also qualify for a $7,500 federal tax credit that Tesla buyers no longer get as the company long ago surpassed the maximum of qualified vehicles. Additionally, California customers can receive a $2,000 rebate for versions of those models priced below $45,000–a perk Tesla customers also don’t receive as the company doesn’t currently have a product that meets that requirement.
Given the lower EV production capacity and sales of Tesla’s competitors, its higher pricing isn’t likely to impact U.S. business in the near term though the company will need to address this eventually, says Jessica Caldwell, executive analyst for Edmunds.
“Tesla’s market share in the EV space will only diminish over time as this market swells with new products from a variety of brands, so it would be advantageous for Musk’s team to start catering to the lower end of the market to position Tesla as a brand that’s attainable as well as aspirational,” she said. “This will be important when EVs become more mainstream.”
Tesla’s price hikes this week were reported first by Electrek, an electric vehicle enthusiast site.