Tesla vehicles in the U.S. are seeing significant price cuts, and that’s proving to be a double-edged sword for the electric carmaker and the greater automotive industry.
Tesla earlier this month slashed prices of its new cars by as much as 20%, making the vehicles more affordable and likely eligible for federal tax credits. But it also tanks the resale values of cars for current owners and is sending ripple effects through the auto industry.
CEO Elon Musk hasn’t directly addressed the price cuts, which are counterintuitive to his claims that the company’s cars will be appreciating assets — a rarity for the market aside from classics and collectible vehicles.
Analysts say the price cuts suggest Tesla is prioritizing sales over profits, potentially signaling a demand problem.
“There’s demand weakening, and they want to improve their sales — or it’s a market share grab,” said Michelle Krebs, Cox Automotive executive analyst.
For the industry at large, Tesla’s price cuts put pressure on other automakers to offer more affordable EVs despite rising commodity costs, creates havoc for used vehicle retailers that will need to write down the vehicles and has Wall Street concerned about the first EV pricing war amid recessionary fears.
“Tesla’s price cuts make all other EVs and [internal combustion engine vehicles] look incrementally more expensive, is margin compressive and sends a chill across the used car market,” Morgan Stanley analyst Adam Jonas wrote in a Friday investor note.