Tesla has once again cut vehicle prices in China. The new price cuts lower the starting price of the Model Y Long Range & Performance by $1,950. The price cuts are expected to further lower Tesla's operating gross profit which is already down 50% in 2023.
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At the start of the year, Tesla significantly cut vehicle prices. The price cuts happened in all geographic regions, including North America, Asia, and Europe. The steep reductions saw the prices of all of Tesla vehicles decrease and some Tesla variants saw their prices fall by as much as 30%.
The effect of the price cuts was immediately felt as waiting times for some Tesla vehicle variants increased from a couple of weeks to a couple of months within days of Tesla instituting the price cuts.
Tesla’s price cuts were successful across the board allowing the EV maker to increase vehicle delivery in the first 2 quarters of the year by 60% as compared to the same time last year.
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This was a success on Tesla’s part however, the vehicle price cuts have also come at the expense of Tesla's vehicle gross margin.
In 2022, increased vehicle prices allowed Tesla to become the most profitable mass-market auto OEM based on gross margin per vehicle sold.
Tesla’s vehicle gross margin reached a record 32.9% and the overall operating gross margin stood at an industry-leading 19%. However, in the first two quarters of this year, Tesla’s operating margin fell to 11.4% and 9.6% consecutively.
This has lowered Tesla’s position in the operating margin leaderboard amongst large auto OEMS. Currently, Tesla has been relegated to third place following Mercedes Benz and Stellantis.
This has created concern among Wall Street analysts who have started to question whether transitioning into a mass-market automaker has turned Tesla into a middle-of-the-pack OEM.
However, despite Wall Street’s concerns, Tesla has continued its strategy of lowering vehicle prices to gain market share. Today, Tesla, through an update to the company’s online configurator, announced that the company has cut Model Y prices in China.
Both the Model Y Long Range and Performance saw their prices decrease by $1,950. After the price cuts, Model Y Long Range now starts at 299,000 yuan ($41,000) and the Model Y Performance starts at 345,900 yuan ($47,500).
These price cuts are incredible for Tesla buyers who are now able to get the same or even slightly better vehicle for as much as $20,000 cheaper. However, although good for the consumer, the price cuts will undoubtedly further lower Tesla’s gross profit.
Currently, Tesla and CEO Elon Musk are so confident in Tesla’s full self-driving strategy, they believe once the EV maker reaches level 5 autonomy, Tesla will be able to gain back the lost profitability by selling owners FSD software through an over-the-air update.
If Tesla indeed archives level 5 autonomy and the autopilot hardware in the current vehicles proves to be adequate to run full self-driving, then Tesla’s current strategy of selling vehicles at a small profit and recouping making the bulk of the profits in the future will be a massive success.
We’ll be sure to keep you posted on Tesla’s financials and FSD rollout. Until then, make sure to visit our site torquenews.com/Tesla regularly for the latest updates.
So what do you think? Excited to learn that in China Tesla has lowered the starting price of the Model Y Long Range to $41,000? Also, do you agree with Tesla’s strategy of cutting vehicle prices to gain market share? Let me know your thoughts in the comments below.
Image: Courtesy of Tesla, Inc.
For more information check out: Tesla's Full-Self Driving Version 12: A Glimpse Into the Future of Autonomy
Tinsae Aregay has been following Tesla and The evolution of the EV space on a daily basis for several years. He covers everything about Tesla from the cars to Elon Musk, the energy business, and autonomy. Follow Tinsae on Twitter at @TinsaeAregay for daily Tesla news.
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