Photo: Tesla | Edited
Earlier in the year, Tesla was thought to have a demand problem, which it solved by slashing prices across the board. However, Tesla also slashed the Model S and Model X prices on March 5, despite inventories consistently dropping. The move might have been prompted by different reasons this time.
The end of 2023 brought us a surprising change of strategy at Tesla. After years of consistently increasing prices, the EV maker has operated its first price reduction. The timing coincided with reports about Tesla’s burgeoning inventories, a trend that had investors worried that the EV carmaker might face a demand problem.
Demand is not something you can measure in itself but also in relation to market conditions, pricing strategy, etc. As Elon Musk famously said during the 2023 Investor Day, the demand is infinite, but people just can’t afford a Tesla. It may have sounded funny, but it’s true: drop the prices, and the demand jumps. Considering the fat profit margins Tesla has on its vehicle, it is certainly in a position to play with the prices to set the demand where it suits it.
And that’s exactly what it did in January when Tesla announced massive price cuts for its entire lineup. Back then, the Model and Model X saw the biggest discounts, up to $21,000 in the case of the Model S Plaid. The demand picked up speed, and the inventories started to deplete. The Model S stock in the U.S. dropped from over 500 cars in February to around 100 in March, roughly at November 2022 levels.
That’s why cutting the prices even further is puzzling, considering the inventory’s downward trend. In another swift move, Tesla cut the Model S AWD price to $89,990 (from $94,990) and the Model X AWD to $99,990 (from $109,990). Model S Plaid and Model X Plaid retail at $109,990 now, down from $114,990 and $119,990, respectively. Tesla also reduced the Model X starting prices in Canada by 7,000 CAD for both variants.
The fact that Tesla didn’t operate similar changes for the Model 3 and Model Y might indicate that the price cuts are specifically targeted at the recently refreshed models in its lineup. The most likely reason is to clear up existing inventories for the updated models. Tesla is already producing Model S and Model X with the new Hardware 4 computer and sensor suite, and it probably wants old vehicles moved as fast as possible.
Based on recent reports on social media channels, Tesla has already delivered cars with the new hardware. This conflicts with the idea of getting rid of old cars in inventory. If Tesla still had HW3 vehicles, delivering those first would have made more sense. So that brings us to the second reason: Tesla has increased Model S/X production and wants to drive up demand for its top-of-the-line models. This also gives Lucid a warning call, considering it already struggled to compete with Tesla at January prices.
Finally, there could be a third reason for the Sunday price cuts. The improved production and savings from manufacturing and supply chain optimizations would allow Tesla to pass on savings to consumers. Still, Tesla never cared much about that, so take this with a grain of salt. What do you think is the reason Tesla slashed Model S and Model X prices?
Demand is not something you can measure in itself but also in relation to market conditions, pricing strategy, etc. As Elon Musk famously said during the 2023 Investor Day, the demand is infinite, but people just can’t afford a Tesla. It may have sounded funny, but it’s true: drop the prices, and the demand jumps. Considering the fat profit margins Tesla has on its vehicle, it is certainly in a position to play with the prices to set the demand where it suits it.
And that’s exactly what it did in January when Tesla announced massive price cuts for its entire lineup. Back then, the Model and Model X saw the biggest discounts, up to $21,000 in the case of the Model S Plaid. The demand picked up speed, and the inventories started to deplete. The Model S stock in the U.S. dropped from over 500 cars in February to around 100 in March, roughly at November 2022 levels.
That’s why cutting the prices even further is puzzling, considering the inventory’s downward trend. In another swift move, Tesla cut the Model S AWD price to $89,990 (from $94,990) and the Model X AWD to $99,990 (from $109,990). Model S Plaid and Model X Plaid retail at $109,990 now, down from $114,990 and $119,990, respectively. Tesla also reduced the Model X starting prices in Canada by 7,000 CAD for both variants.
The fact that Tesla didn’t operate similar changes for the Model 3 and Model Y might indicate that the price cuts are specifically targeted at the recently refreshed models in its lineup. The most likely reason is to clear up existing inventories for the updated models. Tesla is already producing Model S and Model X with the new Hardware 4 computer and sensor suite, and it probably wants old vehicles moved as fast as possible.
Based on recent reports on social media channels, Tesla has already delivered cars with the new hardware. This conflicts with the idea of getting rid of old cars in inventory. If Tesla still had HW3 vehicles, delivering those first would have made more sense. So that brings us to the second reason: Tesla has increased Model S/X production and wants to drive up demand for its top-of-the-line models. This also gives Lucid a warning call, considering it already struggled to compete with Tesla at January prices.
Finally, there could be a third reason for the Sunday price cuts. The improved production and savings from manufacturing and supply chain optimizations would allow Tesla to pass on savings to consumers. Still, Tesla never cared much about that, so take this with a grain of salt. What do you think is the reason Tesla slashed Model S and Model X prices?
Tesla reduced price on Model S in US with inventory consistently dropping.
— Farzad Mesbahi (@farzyness) March 6, 2023
Possibilities:
- Tesla is trying to clear inventory quickly for something new
- They have increased production to support lower pricing
- They are passing on savings from manufacturing/supply chain$TSLA https://t.co/O6RBsi3A4H pic.twitter.com/03IZhPLJR1
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