Tesla Reduces Prices of Model 3 and Model Y in a Bid to Achieve Delivery Targets

Tesla Stock

Tesla (NASDAQ:TSLA) has decided to slash the prices of its Model 3 compact sedan and Model Y SUV in the United States, intensifying its ongoing price competition. This move comes shortly after the electric vehicle giant fell short of market expectations for third-quarter deliveries, aiming to bounce back and fulfill its ambitious goal of delivering 476,000 vehicles in the final quarter of 2023, contributing to an annual target of 1.8 million vehicles.

Tesla began implementing price cuts, ranging from approximately 2.7% to 4.2%, as early as January. These reductions were initially intended to stimulate sales amid economic uncertainty and to counter competition from traditional U.S. automakers like Ford and Chinese electric vehicle manufacturer BYD.

However, the latest price cuts, which primarily affect the standard Model 3 sedan and the long-range Model Y variant, may raise concerns about their impact on Tesla’s industry-leading profit margins. Tesla shares declined by 2.1% amid broader market weaknesses and apprehensions regarding the potential margin erosion. The company’s profit margins had already dipped to near four-year lows during the April-June quarter.

Specifically, the standard Model 3’s price has been lowered by $1,250 to $38,990, while the Model Y long-range version now costs $2,000 less at $48,490, as reflected on the automaker’s website. Tesla has also made corresponding price reductions for higher-priced variants of these models.

In total, the standard Model 3’s prices have seen a reduction of approximately 17% since the beginning of the year, while the Model Y long-range variant has experienced a more significant drop of over 26%.

These price cuts are expected to add further pressure on the traditional “Detroit Three” automakers as they grapple with an unprecedented strike by autoworkers’ unions. Negotiating new contracts with unions is anticipated to lead to increased costs for these automakers, potentially benefiting non-unionized manufacturers like Tesla and Japan’s Toyota.

Tesla is scheduled to report its third-quarter earnings on October 18. Analysts polled by Visible Alpha anticipate that the company’s automotive gross margins for the quarter will be around 19.1%, representing a substantial decrease from a record margin of over 32% in the first quarter of the previous year.

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