Tesla Reduces Prices To Lessen Impact Of Tax Credit Drop

JAN 2 2019 BY STEVEN LOVEDAY 79

We honestly can’t say we’re a bit surprised by Tesla’s latest move.

We’ve been pretty certain all along that Tesla would work to make sure that the reduction and eventual loss of the federal EV tax credit would not have a major impact. While the $7,500 tax credit was just reduced to $3,750, the electric automaker reduced the prices of its Model 3, Model S, and Model X vehicles by $2,000.

Our good friend Earl Banning (28delayslater / The_Earl_of_Frunk_Puppy) sent out a tweet with an early heads up:

Now, Tesla has made it official in its recent press release. The press release states:

Moving beyond the success of Q4, we are taking steps to partially absorb the reduction of the federal EV tax credit (which, as of January 1st, dropped from $7,500 to $3,750). Starting today, we are reducing the price of Model S, Model X and Model 3 vehicles in the U.S. by $2,000. Customers can apply to receive the $3,750 federal tax credit for new deliveries starting on January 1, 2019, and may also be eligible for several state and local electric vehicle and utility incentives, which range up to $4,000. Combined with the reduced costs of maintenance and of charging a Tesla versus paying for gas at the pump – which can result in up to $100 per month or more in savings – this means our vehicles are even more affordable than similarly priced gasoline vehicles.

As you can see from the statement above, this reduction applies to new deliveries beginning January 1, 2019.

Source: Tesla

Categories: Tesla

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79 Comments on "Tesla Reduces Prices To Lessen Impact Of Tax Credit Drop"

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Good news. Turned most of a tax credit into actual up front savings. This is better for a lot of people.

Also it shows that Tesla is more profitable with their vehicles than some seem to think. This is a good sign.

Exactly, the push to deliver as many vehicles in Q3 and Q4 was to deliver the highest margin vehicles. Once they realize some cost savings and such they can afford to drop the price some when the tax credit goes away. This is why the $35,000 model can’t possibly come before the tax credits expire. They need to make it profitable without tax credits at that price.

Wrong! Look for that at midyear. Tesla could do the $35,000 now if they wanted to.

Especially since both german engineers and Munro estimate that the car can be made profitably.

The germans estimated a total of $28K production cost (material+production) which is perfectly fine for a $35K car the way Tesla calculates profit (Tesla separates R&D costs)

Munro was a bit vague with the 30% profit rate but still very positive about the car’s viability.

https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=2ahUKEwix0769u8_fAhUuM-wKHTDlBX8QFjAAegQICRAB&url=https%3A%2F%2Fwww.bloomberg.com%2Fnews%2Farticles%2F2018-07-16%2Ftesla-model-3-critic-flips-view-sees-sedan-being-profitable&usg=AOvVaw3djLEjvP4162_MuAbfShKc

Tesla quietly bundled the $5K PUP from a mandatory option into the price of the car…

Who would want to sell $35k cars when they can’t make enough $44k cars to meet demand?

Musk himself said about one month ago they were $3000 away from making the $35k version.
Now we can believe Munro and his doubtful words or the CEO of Tesla that is known to exaggerate “a bit”.

Both are true. Munro stated that his estimates were based upon sufficient volume. Musk has said repeatedly that Tesla is working on volume bottlenecks, both in production and delivery. As Tesla works through their bottleneck problems, they are reaching the kind of volume that Munro’s estimates were based on.

There is no contradictions between the two. Just a matter of timing and solving bottlenecks.

Taking time out of the equation makes zero sense, it’s irrelevant basically.
Tesla can’t make a profit from the $35k version now and it’s not even close.
Sales for Tesla cars are not magic, they can’t just keep making more cars and expect to keep on selling them no matter what. Last quarter sales were a record but below what was expected, I think with current models/price and in the US Tesla reached the peak of sales… that’s why they’ll renew some models and introduce new ones, also the market is expanding.

Dude is talking out his butt

Misconception: The tax credits do not effect what Tesla (or others) get when selling the car nor do they accrue to the car maker; they only effect the net cost to the buyer. They may, however, make a buyer willing/able to pay more for the car thus effecting the makers income.

Yep, with economies of scale on cruise control, there are steadily raking profits. The 25-28% margin is likely to stay for the $35K model, as Musk predicted years ago.

It wouldn’t say more profitable because they would be producing the SR model 3 if they were. This is just the cost of doing business and staying competitive.

It also gives other car manufacturers something to think about. I’m sure plenty of them were hoping Tesla’s fire would fizzle after 200.000 cars delivered. Teeth are being ground in a few board rooms.

Compare to GM.
They apparently could not manage the lower cost process thru unit sales.
Keeping the Volt only a compliance car means they had to cancel the car after fed tax credits expired. Poor Management of product.

How many Bolts, or Volts did you buy? I would love to hear your genius plan for product management of the Bolt and the Volt and how this super plan would convince tens of thousands more people to buy a Volt, or a Bolt.

The outmoded Volt needs to be killed and replaced, but it wouldn’t take a business genius to make a success of the Bolt EV. Just crank up production up to a much higher level, dropping unit costs and making the car profitable. Sell more in S. Korea and Canada; enough to supply demand currently not met.

More importantly, create a new EV-only badge for Europe, and put that on the Bolt EV. Europe is the biggest potential market for the car. GM cars got a bad name due to shoddy quality in the ’70s and ’80s, so a new badge is needed.

But GM can’t do any of those things, because it doesn’t have access to a large supply of EV batteries. If and when GM gets serious about making and selling plug-in EVs in large numbers, they will need to control their own large-scale supply of EV batteries… just as Tesla does. It takes about two years to get large-scale production plants up and running, so the sooner GM starts on that, the better.

Of course, GM won’t do anything of the sort, because it’s not interested in making and selling a high volume of plug-in EVs. Not yet…

6 months of good sales does not make a trend. Right now we don’t know what the ceiling is for the model 3. We might be at it or no where near it – only time will tell.

I have to believe the ceiling is a lot higher considering lower price variant and (probably) leasing are both in the future.

Be serious. Tesla hasn’t yet sold the Model 3 anywhere outside the U.S. and Canada. We know, from the high number of paid reservations, that there is much demand in Europe, China, and elsewhere.

The global ceiling for the TM3 is much, much higher than it is in the U.S. alone. As they say: “No brag, just fact.”

Not most, just over half, but it DOES effect the amount of sales tax owed which is 9+% in Calif. metro regions.

California would want more 3s to be sold to get that tax money

I suspect that the cost savings has come from improved manufacturing processes for the overall vehicle and reduced battery pack costs. They ought to refresh the Model S and Model X in 2019 and I wonder if that means a change over to the 2170 cells into a new pack (and chassis) design. The new cells are 0.5cm taller (700mm versus 650mm).

Economy of scale is the number one factor. This is what Tesla was aiming all along…
And this is why ICE manufacturers still DON’T use it to lower the price of their few BEV models, protecting their profitable ICE business of selling inefficient, complex and fragile vehicles.
Environmentally destructive profits that WE pay for.

So what happens when/if the feds get their act together and fix the EV tax inventives? For example, if they adopt the proposed idea that all automakers have the same tax credit amounts and sunset dates. Does Tesla then bring their prices back up?

That’s pretty funny joke. Yup, Donald trUMP will definitely sign to extend the tax credit that’ll benefit GM that he railed against just few weeks ago.

ATM he would do anything to get money for his stupid border wall.

Ah crap. Sure could use a shot (or dozen) of Teslaquila…

Your right. Because Trump is consistent like that. He certainly wouldn’t do anything blatantly contradictory.

I believe regardless of what happens with the federal tax credit Tesla will begin to raise prices as early as 2020. Almost all auto manufacturers raise their prices a few percent each year, and Tesla hasn’t done that so far. Now that they are maturing as a company, they can begin to implement inflationary price increases each year.

This is what car makers keep getting wrong. They don’t realize that their ICE prices will continue to rise, while EV prices will continue to fall, making them more and more competitive until their ICE cars will be financially obsolete.

The reality is that pollution from ICE cars are literally killing people. I’m not saying this to be hyperbolic. It is simply a reality. I only say this to explain why the cost of emissions controls on ICE vehicles will continue to go up in cost, just as it has every decade since the 1960’s. ICE cars will continue to get more expensive to produce, with more complex transmissions, higher pressure fuel systems, expensive exhaust systems, etc.

Meanwhile, literally every part of EV’s are getting cheaper. Batteries, electric motors, inverters, chargers, electronics, etc. This is why Tesla has been able to continually increase content and increase range on a trajectory that beats inflation. This isn’t going to slow down approaching 2020, it will only increase as volume really pays for itself over time.

“Tesla will begin to raise prices as early as 2020… they can begin to implement inflationary price increases each year.”

It’s simply amazing how wrong some people can be; and even be willing to display that on a public forum! 🙄

It seems you know almost literally nothing about Tesla. Even a serial Tesla basher like you should be better informed than that!

Reality check: Tesla’s entire business plan is aimed at lower and lower prices over time for its cars.

PuPu, why must you call everyone with whom you disagree a “serial Tesla basher?” And insult my intelligence at the same time. Can’t we simply have a difference of opinion and discuss it?

Regarding Tesla inflationary increases, time will tell. They haven’t raised prices on the S or X at all in 6 years, at least without adding content or functionality. That amounts to a real decrease when you account for inflation. I believe price increases on their products are inevitable but again, time will tell.

And for the record, I am NOT a serial Tesla basher. Most of my comments are pro-Tesla although I have criticized them from time to time when appropriate. I proudly own and drive a Model 3 and tell people it is the best car I have ever driven. I actually conducted an EV Lunch and Learn for my co-workers recently because they had so many questions about the car.

“So what happens when/if the feds get their act together and fix the EV tax inventives?”

That certainly won’t happen so long as either the Orange One or his Veep controls the White House. No way are the hard-right GOP congresscritters gonna help renew the EV tax incentive. They want to kill it off completely, not “fix it”. Their masters at Big Oil don’t like it, y’know?

So we can’t hope for that until January 2021 at the earliest, and frankly, by that time I don’t think much incentive will be necessary. By that time, the natural superiority of BEVs should have become obvious to enough people that the EV revolution will be self-sustaining… no government incentives needed.

But we can hope that at least some European (not just EU) countries will use incentives to help promote the EV revolution there. And China… well, China will do what its oligarchs want, regardless of how good or bad that is for China as a whole. We can hope they will continue their support for EVs, but that could change on a whim.

Interesting, I was expecting they would throw a basic Autopilot in for free instead of lowering the base price. Great that it seems they’re stable enough to take the lower revenue per unit.

If CONgress does not do their job, and tax break is not fixed, then maybe when break ends, they throw in autopilot.

That’s great but I hope Tesla will be able to do what Ford once did with Model T: keep reducing production cost and pass the savings on to the consumer so the sales volumes can increase. Note that all the automotive mega sellers (Model T, Beetle, Corolla, early model years Mustang) had great affordability in common. Of course Model S and X never showed that pattern (quite the opposite) but maybe Model 3 will be different as it’s clearly more of a mass market concept.

Actually MS/MX, combined with outside capital for expansion, have been used to keep the company afloat. Hopefully M3/MY will take over that, along with profits.

Good point, Tesla was never in any position to lower Model S and X prices and Tesla will need all the cash from Model 3 it can get as well for now for further expansion and to keep the shorts at bay. Maybe someday…

Unit cost drop of massive battery production also makes the Model S and X more profitable.

I wasn’t aware the Model S and Model X were using the 2170 cell.

They aren’t, yet. But year-on-year increases in production at Panasonic and other battery makers has been a big part of the reason why EV battery prices have been falling so fast in the past few years.

Heck, Tesla hasn’t even moved the Model S and X to 2170 cells yet. That will be yet another cost savings lever Tesla still has to pull some day in the future.

The Model S/X cells have been going down in price too.

Tesla likely can’t change cells because they have a contract and dedicated factories they encouraged Panasonic to build for them. It would be a big betrayal to abandon the S/X batteries at this point. It wont matter too much though since they have like a 28% margin on those vehicles already.

The factories themselves aren’t really the issue, because Tesla and Panasonic can negotiate a new contract for those factories to be used to build 2170 cells instead of 18650’s. It is really just the factory machines themselves that put together the batteries.

Tesla has already announced its intent to switch the Model S and X over to the 2170 cells. In fact, Tesla has already put that off. So it’s not like it will be a surprise to Panasonic when it happens.

It’s possible that contracts are part of why Tesla hasn’t yet switched the MS & MX to 2170 cells, but I doubt it. I think it’s more that Panasonic has had to struggle keeping up with Tesla’s erratic growth in Model 3 production, which has gone in fits and starts.

Now that Model 3 production has (apparently) settled down somewhat, perhaps Tesla can move to make that switch. But it makes no sense to develop a new battery pack without making other changes at the same time. Tesla watchers have been saying for years that the Model S is due for a major upgrade. I suspect Tesla wants to make other improvements, such as the revamped and much improved wiring harness in the Model 3. No doubt it would very much like to have that cost savings in the MS/MX, too.

Actually, Model S and X continually reduced production costs, it is just that those savings were passed onto customers in the form of more standard features, bigger battery packs, faster supercharging, longer range, faster acceleration etc instead of lower prices.

Tesla’s lower prices instead came in the form of a the Model 3 ,instead of continuing to build a slower 60 kWh RWD Model S that was stripped of features and didn’t even include the ability to supercharge in the early base prices without having to pay an upcharge.

I have said here for years that the result of halting the tax credits is that the vehicles would go down in price by an equivalent amount. The tax credits do nothing but artificially boost the prices of EVs.

The point of the credit was to help the margins of EV makers so they could confidently invest in new tech and it’s been a success at that.

The tax credit is why a lot of EVs exist and the expiration is a lot of why we’re losing the Volt. Small sample with the credit only expiring on one company though. It remains to be seen if the Bolt gets a price cut in April.

That “artificial price boost” .. lol .. is real money that has helped boost Tesla’s bottom line . Lowering prices = less profit . Tesla will miss that money , and there is nothing artificial about that ! * 🙁 *

Tesla is the exception. Growing to a full mass auto maker is not a small task.
Established ICE car makers with 100 times the manufacturing power of Tesla always priced their EVs about $10K more than they are worth. It’s like handing them the tax credits.

GM never built the volt in volume, so they may have had to kill it.
Same for the Bolt, still not a volume car.

To build in volume, you need BUYERS in volume. How many Bolts, or Volts did you buy?

Bought one of each.
And now a Model 3 too.

If “artificially boost” is making up for lower margin due to R&D and tooling, yeah, that’s exactly what the tax credit was for.

Yeah, there was nothing “artificial” about the money that got refunded to EV buyers. Nor was there anything “artificial” about how that boosted the sales of plug-in EVs over the past several years.

Anyone who doubts the latter only needs to look at what happened to EV sales in Georgia when a State income tax credit for EVs was introduced… and what happened to EV sales when that abruptly ended.

“[b]up to[/b] $100 per month [b]or more[/b]”

Haha that’s vague. 🙂

(⌐■_■) Trollnonymous

Buy now! because I predict if/when they renew the Fed rebates it will be retroactive.

Agreed. Most tax credits that sunset and are renewed are done so retroactively. This would make the MR PUP $36,500- a great value. I can’t bite yet though. I’m stuck in a lease and I want to pay cash for the Model 3. Plus there’s no heated steering wheel option yet. That’s a huge let down.

Yes, this was done repeatedly with the EV Motorcycle Federal 10% tax incentive. It kept getting extended retroactively in late December retroactively for the entire year as part of a package of tax extensions.

People who bought EV motorcycles had no idea whether they would get the incentive or not until it came down to the final days of the year.

If there is a change to the fed. incentive pushed through any time between now and Dec. 31st 2019, it could very well be retroactive for the entire tax year.

And the “what’s actually happening” headline should be “Tesla Reduces Prices to Battle Softening Demand”

…on the day they announced record braking quarter? To “Battle Softening Demand” don’t you actually have to have that problem?

Let’s not put a spin on it, it was a record breaking quarter that was below expectations. Tesla already announced plans to begin exporting units in February. That, combined with the discount, tells me domestic demand is gone (at least until the SR is available). And it makes sense- everyone that wanted one got one while there was $7500 on the hood.

Now there’s only $5750 on the hood with a gamble that there could be $9500 on the hood if the tax credit is retroactively extended. That gamble might be enough to make a few more people bite, but I imagine only enough to consume demand until exports begin.

Below what expectations? That’s a completely fabricated narrative. There isn’t a single projection that was even two days’ production more than what Tesla did. Be honest, did you predict Tesla would sell more than 90k vehicles in Q4 2018 even six months ago?

Tesla announced back in spring before they even got ramp-up going that their plan was to start exports beginning in 2019. It was always their intention all the way back to 2017 to start exports in late 2018 or early 2019. But now all the sudden, Tesla started taking orders in Europe a month ago, in response to sales results for a quarter that ended just a couple of days ago???

Are you suggesting that Tesla started responding to Q4 2018 sales numbers back in Q2 2018? Do you understand the linear nature of time?

It does crack me up though when the same folks who have complained for years that Tesla is always late getting cars to market, to now claim that Tesla IS SO FAST to pivot that they can decide at the end of a quarter that because they missed some other people’s targets by a few hundred cars (less than a single day’s worth of sales) that they will INSTANTLY get their EU version of their Model 3 homologated for the EU, complete with crash testing and all changes required to make it legal.

“…a record breaking quarter that was below expectations.”

Below whose expectations? Some Wall Street investment firm practicing a short-term pump-and-dump scheme, right before Tesla released its sales report?

Please point met to any self-appointed “financial analyst” who predicted, at the end of 2017 or the beginning of 2018, that Tesla’s global sales would increase by 142% during the year. Or any prediction even remotely close to that number.

Good luck; I seriously doubt you’ll find one.

The performance of Tesla’s business during the past year is not only surprising, it’s astounding. When is the last time that any heavy industry company beyond the startup phase has achieved more than 100% sales growth in a single year?

This belated attempt to portray the year’s achievements as “less than expected”… well, it’s not only brain-dead, it’s insulting to think any informed Tesla watcher or EV industry watcher would buy into that bull pucky.

This is a wonderful time to be a Tesla fan! We should celebrate Tesla’s fantastic year… and not let a few Nattering Nabobs of Negativity spoil our party.

An enormous raspberry to them! 😛

If you are worried about softening demand, it should be GM you should be worrying about.

Yeah, we can see just how much demand for Tesla cars has “softened”… with 2018 Tesla sales up 142% over the previous year!

There comes a point, Bro1999, when your incessant Tesla bashing is no longer even annoying; it’s merely quaint and ridiculous.

You’ve passed that point.

This is very cool on many different levels for Tesla also it shows the oil and old car makers that EV’s don’t need tax subsides to thrive.

My biggest fear is some oil thug trying to add massive taxes to EV owners though.

Basically Tesla is saying, we take $2,000 cut and the customers take $1,750 cut on the #3,750 fed rebate reduction.
In another 6 months, Tesla may take another $1,000 cut and in 12 months, another $1,000.

So Tesla vehicles will be $4,000 cheaper starting 2020.
And Chinese companies are also going to do the same since their government is also cutting the subsidies.
Now what is the GM going to do with the Bolt’s price.
We are not going to ask about Volt since its going to live for another 2 months.

This is exactly how the tax incentive was designed to work by the way. With the idea being that the very fact that a company hit 200K EV’s worth of sales, that mass production savings should be leading to cuts in manufacturing costs that make it so car companies can cut their prices at the same time the incentive is expiring.

Of course all this was supposed to happen much much faster and over much fewer years. But a global economic crash, and a long list of supposed 10X big bang battery improvements that never panned out caused the timeline to triple or quadruple.

Anyway there is an average price reduction of $23 / KWh to $176 / KWh as per bloomberg report.
So for 75 KWh, the calc is
75 * $23 = $,1725.
And Tesla gives another $275 rebate on the car.
So there is no loss for Tesla at all.

As usual, the skeptics and shorts jumped in reduced the stock price.

It is actually better than that. The COST reduction of $1,725 that you calculate is measured in pre-margin dollars (think wholesale pricing).

While the $2000 dollar PRICE reduction is measured in post-margin dollars (think retail pricing).

That means Tesla isn’t actually “giving” another $275 in rebate on the car, because to keep their margin the same, they would need to take their margin out of the retail price too. If their margin is 15-20%, then that accounts for that $275 too with no impact on Tesla’s margins.

Cutting materials costs allows companies to reduce the prices by MORE than just the cost savings itself and still keep the same margins. The other way of thinking about it is in terms of VAT taxes. If the price before VAT is 100, and after VAT is 120, if you cut the price before VAT by 20, the after VAT price doesn’t drop by just 20. It drops by 24 because both the price and the VAT itself both go down, even when the VAT tax rate is still 20%.

Is there anyone who is seriously surprised that an EV car maker is doing price cuts the instant the Fed Tax incentive starts to sunset?

This has been talked about literally for YEARS!!! The timing and amount of the price cuts (almost exactly half the amount of the drop in fed. incentive, and price cut only in the US) should be no surprise to anybody who has been paying attention.

Saying it has something to do with demand slowing, when we just saw record deliveries simply ignores years of history on discussion of the Fed incentive that led to predicting these price cuts years ago. Tesla is simply splitting the difference between itself and their customers for the reduced tax incentive.

Why are they doing this? Because it is the right thing to do for customers so they aren’t stuck swallowing the full impact of the incentive sunset out of their pockets. Nothing to do with demand.

Not surprised, no. But full disclosure: I did predict Tesla wouldn’t drop the price in reaction to the drop in Federal income tax credit.

Obviously you were (and are) better informed on this subject than I was, Nix. But then, you usually are! 🙂

Tesla telegraphed this price reduction back when they announced that they would cover the difference of the tax incentive drop for any customers who ordered in time for 2018 delivery, but for any reason Tesla wasn’t able to make the delivery until 2019.

That is very kind of them.

I think most people are forgetting the recent past – Tesla increased the prices of the P3 and the LR dual-motor after they dropped the LR RWD months ago, and they also dramatically increased the costs of the paint options. If you opt for a non-black color for a LR AWD, your price will only be down about $500 from several months ago, if at all, with this $2k price cut.