Tesla Slashes Model 3 And Model Y Prices To Combat Biden's Tax Rebates

Electric Vehicles / 16 Comments

We hope you haven't already bought one this year.

As more and more electric cars come on the market, Tesla is finding that it's now in a price-sensitive market and has slashed prices on the Model 3 and Model Y yet again after major price cuts across the entire Tesla lineup earlier this year. It's the sixth price cut this year and the second this month, and this time, the Model 3 RWD drops by $2,000 to $39,990. Part of the reason is likely as the Model 3 only qualifies for half of the federal EV tax credit; the other half we'll get to in a minute. Because not enough of the battery system is sourced from the US, Model 3 buyers can only claim $3,750. However, it's worth noting that the Model 3 Performance qualifies for the full credit of $7,500.


The Tesla Model Y does qualify for the full $7,500 tax credit but still gets a price slash. The Model Y Long Range is now priced at $49,990 before the credit. That's a drop in price of $3,000 and a total drop of around 11% since the beginning of the year. The aging Model 3 - due for imminent replacement - has had a bigger price drop since January at 20%.

These price cuts come at the same time as Tesla declared its lowest quarterly gross margin in 24 months, with Reuters reporting that Tesla is putting sales growth ahead of profit. "It's better to shift a large number of cars at lower margin and harvest that margin in the future as we perfect autonomy," Elon Musk told analysts on a conference call.


The takeaway here is that Tesla is going for volume now, which takes the brand into its next stage as it has to deal with competition from legacy makers. Effectively, Tesla is now entering a price war, particularly in China. This is great for consumers in general but not so much for existing Tesla customers.

The price cuts are, understandably, aggravating existing customers who are finding the car they bought would have cost two or three thousand dollars less if they had waited three months or sometimes even three weeks. Compounding that and aggravating longer-term customers is how the drops are affecting used Tesla prices. Various reports add up to over a 20% drop in the used market price of a Tesla Model 3, with the decline starting in the middle of last year.

If you've been thinking about a used Model 3, now is probably the time. Then again, Tesla might knock another five percent off next month, so who knows?


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