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Why is Tesla cutting prices on its cars? How much do they cost now?

The firm has reduced prices for two popular models ahead of some important rule changes to the $7,500 Electric Vehicle tax credit.

Tesla slashes the price of Model Y and Model 3

In a bid to address a slump in demand, Tesla has slashed prices on two of its most popular electric cars. The reductions have been made in both the United States’ and European markets and have seen some prices cut by as much as 20%.

The firm’s total global sales for 2022 fell short of analysts’ projections and the share price has fallen by 70% since a high in November 2021. Tesla, which became the most well-known manufacture of electric vehicles, is facing increased competition from major automotive companies.

In the fourth quarter of 2022 Tesla produced 440,000 new cars, but delivered little more than 400,000. The decision to cut prices may be part of an attempt to clear some unsold stock and highlights a dip in demand.

How much does the Tesla Model Y and Model 3 cost?

In the US the company’s flagship Model Y Performance is available to purchase for $56,990, a 18.6% fall from the previous price of $69,990. The slightly cheaper Model Y Long Range AWD has seen an even bigger reduction, falling by nearly 20% to $52,990.

Likewise Tesla’s Model 3 Performance model is now on sale for $54,000, a 14% cut from the price of $63,000 last year. The cheapest version, the Model 3 Standard Range, has been reduced by $4,000 to $44,000.

A similar story is unfolding in Europe, where Reuters reports that German buyers are seeing reductions of up to 17% on the same models. The reduction has put Tesla’s Model 3 at a similar price point as German manufacturer Volkswagen’s entry level electric car, the ID.3

In China, some Tesla customers staged protests after both the Model 3 and Model Y were subject to significant reductions after they had agreed to take delivery before the end of 2022 at the higher price.

How will the Tesla price drop affect electric vehicle tax credits?

President Biden’s Inflation Reduction Act included funding for a new wave of electric vehicle tax credits, which will offer rebates of up to $7,500 for EV buyers.

However for 2023 those credits are only available for cars with a retail price of no more than $55,000, or a value of $25,000 for second-hand cars. The recent reduction will allow more prospective Tesla owners to claim an EV tax credit, offering a significant enticement for buyers.

From April onwards, eligible EVs will also have to satisfy new rules governing the ethical sourcing of raw materials and ensuring that final assembly takes place in North America.

This means that Tesla, and other manufacturers, have a narrow window before they are required to meet the new requirements. They may be hoping to maximise profits being forced to change their processes.


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