Tesla Cuts Model 3 & Y Prices As New Federal Tax Rebate Makes Customers Delay Their Purchases

Tesla has once again lowered the starting price of the company’s entry-level vehicles - the Model 3 and Y. The current price cut is coming in a series of price adjustments that have made the two vehicles close to the average vehicle selling price in the US.

The base version of the Model 3 saw its price lowered by $1000 dollar. The luxury sedan now starts at $36,990. The base version of the Model Y also saw a cut but a slightly bigger one. The price of the crossover was cut by $2000 and currently starts at $39,990.

With the new price cuts, Tesla has made the two vehicles even better value for money than they already were. However, Elon Musk in the past has said Tesla vehicles are very good value for money however, no matter their value if people aren’t able to afford them, it still doesn’t make a difference.

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A way to understand Musk’s point is to look at the company’s Model S and X. Tesla’s two largest vehicles pack enough performance and tech to rival their competition which are 2 to 3 times more expensive (if not more). However, most people can’t afford a vehicle with a starting price of $80,000. As a result the Model S & X still don’t have mass-market adoption.

The new price cuts to the Model 3 & Y should make the vehicles addressable to even a wider swath of the population. However, it is peculiar Tesla decided to cut the price of the base Model Y by $2000 just months after its introduction.

The first quarter of the year has always been a tough time for Tesla. The company usually sees a decline in sales in this part of the year. In addition, talk of a new $7000 EV federal tax break has made some buyers hold off their purchases.

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When news broke out that the new Biden administration is looking to reinstate the federal EV tax break for further 400,000 vehicles, several people posted on Tesla focused subreddits saying they will hold off getting a new vehicle so they could take advantage of the tax break when it is passed into law.

There is no way for sure to say, Tesla cut the prices due to decreased demand caused by the new tax incentive. However, Tesla executives on multiple occasions have admitted they adjust pricing based on demand.
Given the industry-leading margins Tesla vehicles enjoy it would make sense for the company to use pricing to drum up demand for its vehicles. Tesla has also been known to make continuous improvements to its production process to make it more efficient.

As a result, it would also be reasonable to assume the price cuts are a result of a new manufacturing efficency Tesla has been able to achieve in the manufacturing process. However, Tesla doesn’t always pass those savings to the consumers, especially if the company is already unable to meet demand.

Whatever the reason for the tax breaks, one thing that is really exciting is if the $7000 tax break passes in congress in addition to Tesla’s price cuts, it might be possible to buy a Model 3 for under $30,000. This would make the Model 3 a must-buy vehicle.

So what do you think? Are you excited about the price cuts? Did it make any of you decide to go ahead with a Model 3 or Y purchase? And do you think Tesla cut the prices due to lower demand caused by the talks of the federal tax break? Let me know your thoughts down in the comments below.

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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.