Toni Dimaano Auto 03.06.2023 21:Mar PM EST

Why Did Tesla Drop the Prices of Model S, Model Y?

The starting prices for the Tesla Model S and Model X have decreased by 5% to $89,990 and by 9% to $99,990 respectively.

It comes after a string of aggressive sales from the company, which in January saw price cuts of up to 20% on its new cars, CNBC reports.

Elon Musk Says The Move Was Made To Attract Customers

Both vehicles are ineligible for federal tax credits that will expire later this month since they are only available for SUVs and cars priced under $55,000 and $80,000, respectively.

Musk has stated time and time again in recent months that Tesla will prioritize lowering prices to increase demand and that the company has seen success in generating orders with the introduction of worldwide discounts in January.

Musk stated on Tesla Investor's Day that although individuals have a strong desire to own a Tesla, their ability to pay for one is what prevents them from doing so, Engadget notes.

Although they remain above the $55,000 threshold to be eligible for up to $7,500 in tax credits toward the purchase of new vehicles.

However, the most recent price reduction is probably unconnected to the EV tax credits included in President Joe Biden's Inflation Reduction Act.

In an industry where the sticker price of a vehicle in stock is still referred to as the base price, Tesla has changed its prices more quickly and frequently than other well-established automakers.

In an effort to entice more customers and boost sales, this has sparked a pricing war among auto manufacturers.

After Tesla's pricing cuts in January, Ford price reductions of up to 8% were made to its electric Mustang Mach-E crossover.

Recently, Musk has moved Tesla's attention to lowering pricing in order to increase demand for its products.

He stated that Tesla was seeing orders almost double the rate of production during the company's fourth-quarter results call in January.

According to Musk, these pricing increases actually have an impact on the typical consumer, which is why it has been implemented.

Tesla Wants To Get Ahead In The EV Arms Race

This most recent price decrease, according to Dan Ives, managing director of equities at Wedbush Securities, has previously boosted demand by 30% right away.

Tesla has the margins to lower prices while maintaining a significant competitive advantage over other automakers in this EV arms race.

The company needs to remove the bandage and lower pricing in this uncertain economic climate, and Wall Street will support this.

Tesla will need to match such prices with lower production costs if it wants to provide discounts of that size, according to CNBC.

The organization has been working hard to attain this goal and has already started making some supply chain expense reductions.

The development of an EV motor without rare earth metals, which are essential to the motors used in electric vehicles, was announced by a Tesla executive last week.

The official cited the need to reduce costs and environmental hazards associated with the extraction of these minerals.