The purchase price of a dual motor all-wheel drive Model 3 is now US$53,990, a 14% drop from $62,990 previously. The purchase price of a long-range Model Y is now US$52,990 — a 20% reduction from what had been US$65,990.
The Biden administration’s Inflation Reduction Act, signed into law last year, created new criteria for consumers to qualify for as much as a US$7,500 tax credit on new EVs or plug-in hybrids.
If it’s a van, SUV or pickup truck, the manufacturer’s suggested retail price can’t exceed US$80,000. For other vehicles, including sedans like Tesla’s Model 3, the sticker price can’t exceed US$55,000. The vehicle must be assembled in North America and meet battery and weight requirements, and there are also income limits for buyers.
Tesla’s popular five-seater Model Y isn’t heavy enough to be categorised as an SUV by the government, and what had been a nearly US$66,000 starting price had made it ineligible for the credit for vehicles classified as sedans. Thursday’s price cut means it now qualifies.
Tesla’s website notes that the tax credit amount “applies to deliveries now and may change during March 2023, at which point credit amounts may be reduced”.
Tesla also stressed the MSRP price caps.
“The vehicle price at the time of delivery must not exceed the following caps. This price includes optional equipment physically attached to the vehicle at the time of delivery and excludes software features, accessories, taxes and fees.”
- Model 3: $55,000
- Model Y with 5 seats: $55,000
- Model Y with 7 seats: $80,000
Toni Sacconaghi, an analyst at Bernstein, warned last week that Tesla would likely face demand challenges since most models had been too expensive.
“We believe Tesla will need to either reduce its growth targets (and run its factories below capacity) or sustain and potentially increase recent price cuts globally, pressuring margins,” Sacconaghi wrote in a Jan 2 note to clients. “We see demand problems remaining until Tesla is able to introduce a lower priced offering in volume, which may only be in 2025.”