Photo: Tesla
Tesla is overhauling its operations, affecting everything from the employees to the company's strategy. On Tuesday, Tesla removed all inventory discounts in the US, signaling the end of the price cut era. On Wednesday, Tesla announced new financing options in the US and Europe as it tries to fight sluggish demand.
Update: Barely one day after we published this article, Tesla operated another price cut for all vehicles in the lineup except for the refreshed Model 3 and the Cybertruck. The move contradicts there was a change of strategy and looks more like no strategy at all. Even Tesla fans are confused, and Elon Musk had to intervene and explain the reason behind the recent price cuts.
The disappointing first-quarter production and delivery numbers were a wake-up call for Tesla, which has to confront a drop in demand for the first time. The realization made Elon Musk take swift action to turn around the company, whose market cap lost over 37% this year. Tesla shares trade at $155, a level not seen since December 2022, when Tesla began its fight against low demand and increased inventory.
Back then, Tesla cut the prices across its lineup, sending shock waves across the automotive industry. Many spoke about a price war, especially EV startups that saw their hopes of breaking even demolished. As the sole carmaker selling EVs profitably, Tesla could afford to lower prices, even if this meant shrinking margins. However, cash-strapped companies, already losing a lot of money while ramping up production, could not match Tesla.
Tesla's price cuts in January 2023 were compared to a similar move by Ford when it started mass-producing the Ford T. No other carmaker dared to cut more than 20% of its car's prices at once. This put pressure on the competition and solved Tesla's problem temporarily. On the other hand, Tesla antagonized existing owners, who saw the resale value of their cars plummeting. It also worried investors about the lower margins and the company's financials.
From the beginning, it was clear that price cuts would not be enough to reverse a trend now becoming more obvious. The demand for EVs appears to have peaked, as most early adopters considering a Tesla already have one. Tesla's growth prospects were in jeopardy without a new model or markets. And this has never been clearer than when Tesla posted the first-quarter delivery numbers. Despite the price cuts, Tesla sold 46,000 fewer cars than it produced in the first quarter. The inventory was at an all-time high as a result, prompting the carmaker to make adjustments.
Based on Elon Musk's latest decisions, these adjustments mean scrapping the previous price-cut strategy. The era of affordable Teslas might be over, with discounts gone on all models, including those in the inventory. This might sound counterintuitive, considering the fat inventory and sluggish demand. However, there are different ways to lure buyers other than cutting prices. As we anticipated earlier, Tesla is doing just that. China was the first market where it tested the new strategy, offering zero-interest loans for up to five years.
Tesla now offers 0% financing for Model Y LR AWD and Performance variants in Germany. The Model Y RWD and Model Y LR RWD have a 1.99% financing rate, compared to the 6.54% regular rate. To benefit, the buyers must take delivery of their cars by the end of June. Tesla offered zero percent financing in Germany before, most recently in January, when it also cut Model Y prices.
The US customers don't get this benefit despite popular demand to offer similar deals. Instead, Tesla now offers preferential lease rates, starting at $299 per month with a $2,999 downpayment for the Model 3. Previously, the lowest Model 3 lease price was $329 per month. There's a catch, though, as Tesla doesn't offer the option to buy out the car at the end of the lease period. This makes people less interested in leasing a Tesla. However, this might change as Tesla is pressured to accelerate sales without further affecting margins.
The disappointing first-quarter production and delivery numbers were a wake-up call for Tesla, which has to confront a drop in demand for the first time. The realization made Elon Musk take swift action to turn around the company, whose market cap lost over 37% this year. Tesla shares trade at $155, a level not seen since December 2022, when Tesla began its fight against low demand and increased inventory.
Back then, Tesla cut the prices across its lineup, sending shock waves across the automotive industry. Many spoke about a price war, especially EV startups that saw their hopes of breaking even demolished. As the sole carmaker selling EVs profitably, Tesla could afford to lower prices, even if this meant shrinking margins. However, cash-strapped companies, already losing a lot of money while ramping up production, could not match Tesla.
Tesla's price cuts in January 2023 were compared to a similar move by Ford when it started mass-producing the Ford T. No other carmaker dared to cut more than 20% of its car's prices at once. This put pressure on the competition and solved Tesla's problem temporarily. On the other hand, Tesla antagonized existing owners, who saw the resale value of their cars plummeting. It also worried investors about the lower margins and the company's financials.
From the beginning, it was clear that price cuts would not be enough to reverse a trend now becoming more obvious. The demand for EVs appears to have peaked, as most early adopters considering a Tesla already have one. Tesla's growth prospects were in jeopardy without a new model or markets. And this has never been clearer than when Tesla posted the first-quarter delivery numbers. Despite the price cuts, Tesla sold 46,000 fewer cars than it produced in the first quarter. The inventory was at an all-time high as a result, prompting the carmaker to make adjustments.
Based on Elon Musk's latest decisions, these adjustments mean scrapping the previous price-cut strategy. The era of affordable Teslas might be over, with discounts gone on all models, including those in the inventory. This might sound counterintuitive, considering the fat inventory and sluggish demand. However, there are different ways to lure buyers other than cutting prices. As we anticipated earlier, Tesla is doing just that. China was the first market where it tested the new strategy, offering zero-interest loans for up to five years.
Tesla now offers 0% financing for Model Y LR AWD and Performance variants in Germany. The Model Y RWD and Model Y LR RWD have a 1.99% financing rate, compared to the 6.54% regular rate. To benefit, the buyers must take delivery of their cars by the end of June. Tesla offered zero percent financing in Germany before, most recently in January, when it also cut Model Y prices.
The US customers don't get this benefit despite popular demand to offer similar deals. Instead, Tesla now offers preferential lease rates, starting at $299 per month with a $2,999 downpayment for the Model 3. Previously, the lowest Model 3 lease price was $329 per month. There's a catch, though, as Tesla doesn't offer the option to buy out the car at the end of the lease period. This makes people less interested in leasing a Tesla. However, this might change as Tesla is pressured to accelerate sales without further affecting margins.
NEWS: Tesla has lowered its starting lease price for the Model 3 in the U.S. to $299/month (from $329). pic.twitter.com/JuwAKiWkwj
— Sawyer Merritt (@SawyerMerritt) April 17, 2024
NEWS: Tesla has reintroduced a 0% financing offer in Germany, the second time it has done so in 2024. The reintroduction of the offer comes just two weeks after also relaunching the financing incentive in China. https://t.co/LLyKyEHDJz
— Sawyer Merritt (@SawyerMerritt) April 17, 2024
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