After multiple price cuts this year, the Tesla Model Y now costs less than the average new vehicle in the U.S., EV or not. That’s the conclusion of a recent Bloomberg article that compared the price cuts of the Tesla Model Y with the average prices of new vehicles in 2023.
The base price of the Model Y has decreased by 24% since January, the steepest price cut of any Tesla model, notes Bloomberg, adding that the Model Y and the related Model 3 sedan have never been priced below the average cost of a new car.
The current base price of $49,990 is $2,241 more than the average price of a new car in the U.S., but the Model Y is also expected to qualify for the full federal tax credit of $7,500. That reduces the effective price to $42,490, approximately $5,300 less than the average price paid for a new car in the U.S. in March, according to the report, citing data from Edmunds.
Bloomberg sees these price cuts as transformative. Tom Randall, the article’s author, wrote that the closest analogue to the Model Y price cuts could be Ford’s drastic reduction of Model T prices in the 1920s and tweeted that Tesla has initiated a price war with internal combustion engine automakers.
However, other factors may be at play. This could be a signal that the pending update for the Model 3 and Model Y is near. Tesla only reveals product information as part of financial updates and CEO tweets, but if Bloomberg’s analysis is any predictor, it might be coming soon.
However, ultimately, Tesla’s latest sales figures indicate that even with price cuts, the company is falling behind in deliveries compared to production, an indication that more price cuts might be needed. That said, Tesla has achieved significant gains where electric vehicle growth is strong, such as California, and is the only electric vehicle manufacturer that has truly stepped up to meet demand.
Tesla has struggled to meet robust demand for electric vehicles in the past. In 2016, after Tesla announced the Model 3, demand for the model surprised even CEO Elon Musk. In 2021, after Tesla began raising its prices, the company noted a “profound awakening to the convenience of electric vehicles” that took it by surprise.
Established automakers are also weighing the costs of electric vehicles and potential demand, but with a different calculation than Tesla. Stellantis’ Ram executive called electric vehicle price pressure the “elephant in the room,” and the idea of an electric vehicle price war is something Ford CEO Jim Farley has been preparing for.
However, unlike Tesla, automakers like Stellantis and Ford have gasoline vehicle sales as an alternative source of income. A recent S&P Global Mobility report emphasized that, especially given increased competition, full-line automakers need profits from large gasoline trucks to support investment and expansion in electric vehicles.
