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Tesla Raises Model Y Pricing in the U.S. by $500, Signaling No Price War Is Planned

Tesla puzzled everyone with a $500 price increase for the base version of the Model Y in the U.S. and Puerto Rico. Coming after a massive $13,000 price drop for the same model, this move is more likely a signal than a price adjustment.
Tesla Model Y price in the U.S. starts $500 higher 7 photos
Photo: Tesla
Tesla price cuts are a punch in the gut to all other players in the EV arenaTesla price cuts are a punch in the gut to all other players in the EV arenaTesla price cuts are a punch in the gut to all other players in the EV arenaTesla price cuts are a punch in the gut to all other players in the EV arenaTesla price cuts are a punch in the gut to all other players in the EV arenaTesla price cuts are a punch in the gut to all other players in the EV arena
Less than two weeks ago, on January 12, Tesla wowed everyone with massive price cuts in all markets. In the United States, the prices dropped between $3,000 and $21,000, with the lowest figure for the Model 3 RWD and the highest for the Model S Plaid. The Model Y was discounted by $13,000 regardless of the trim, bringing its price well below the $55,000 limit for IRA tax credits.

Many people speculated that the price cuts were meant to clear inventories after a slow period. Tesla is indeed ramping up two gigafactories simultaneously, and the sales were unusually low for the end of the year in December 2022. The price cuts accelerated sales and helped Tesla with inventories, for the most part, but it also put pressure on rivals.

Startups like Lucid and Rivian are the most affected because they were already far from breaking even at higher prices. Lucid immediately followed Tesla with a $7,500 price cut on its Air leases. Electric vehicles across the board were suddenly less competitive than Tesla’s, and people started discussing a price war.

If Tesla started a war, it was surely well positioned to win it, thanks to a more advantageous cost structure. Tesla had a 30% margin on its vehicles before the price cuts and is likely to still enjoy a healthy margin after the cuts. It can certainly lower prices even more if that’s to its advantage. Nevertheless, it turns out that Tesla has no intention of starting a price war and is already signaling this.

Monday night, Tesla operated a modest $500 increase for the Model Y Long Range in the U.S. and Puerto Rico, as discovered by Tesla enthusiast Sawyer Merritt. It’s not like the EV maker couldn’t leave without that money. As it seems, this is a signal, not a price hike. Tesla wants others to know it doesn’t care about a price war. It’s only doing what it considers appropriate to execute its business plan. There could well be another reason, though: to signal customers that the recent price cuts are not here forever, in a nudge to those who still hesitate to place an order.

Matt Jung (@Mattjungphoto), who tracks Tesla inventories in the U.S., has noticed that Tesla Model Y records have depleted after the price cuts. It was highly likely that Tesla would raise the price again to balance production with demand. As for the other models discounted on January 12, their inventories were pretty much flat after a dip right after the price cuts. This indicates that Tesla gauged their prices better.

Nevertheless, Tesla has another constraint, even if it wants the Model Y prices to be higher now: the IRA tax credit. Tesla cannot raise the Model Y price above the $55,000 threshold, at least not until the IRS clears the confusion about the Model Y being an SUV or a regular car. Nevertheless, come April 1, Tesla would likely lose half of the IRA incentives because of the battery materials origin requirements. Then it might adjust the prices again, and it would be interesting to see what Tesla chooses to do.

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About the author: Cristian Agatie
Cristian Agatie profile photo

After his childhood dream of becoming a "tractor operator" didn't pan out, Cristian turned to journalism, first in print and later moving to online media. His top interests are electric vehicles and new energy solutions.
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