TESLA CUTS PRICES OF TOP MODELS TO STOKE DEMAND FOR MORE EVS

Carmaker reduces Base Model 3 by $1,250 to $38,990

Tesla cut the prices of its top-selling models again in the U.S., continuing its push to stoke demand and capitalize on easing supply constraints.

The carmaker marked down the starting price of the base Model 3 by $1,250 to $38,990, and discounted the long-range version of the sedan by the same amount to $45,990.

Tesla also lopped $2,250 off the price of the performance version of the Model 3, which now starts at $50,990, and $2,000 off the long-range and performance versions of the Model Y sport utility vehicle, which now cost $48,490 and $52,490, respectively. The company already reintroduced a cheaper version of the Model Y earlier this week.

Tesla delivered 435,059 vehicles during the last three months, down from the previous quarter and around 20,000 units short of what analysts were expecting. The company will need to sell 475,000 more cars in the coming months to meet its 1.8 million target for the year.

The biggest factor contributing to Tesla’s price cuts has been the lifting of production constraints that held the company back for years. It’s been ramping up new factories in Austin and near Berlin that opened in early 2022, giving Chief Executive Officer Elon Musk a scale advantage over incumbent manufacturers that are struggling to catch up in EVs.

Tesla started up those facilities as availability of semiconductors and other components that were in short supply during the pandemic began to improve. It also has been benefiting from easing prices of lithium and other key battery materials.

Tesla still maintains a dominant position in the U.S. electric-vehicle market, though it’s increasingly relied on discounting to preserve its position. Fresh product could help buoy pricing in the coming months, with the carmaker recently debuting an updated version of the Model 3.

While Tesla’s price cuts have helped offset the effects of higher interest rates and inflation, they’ve also put a damper on profitability. Automotive gross margin fell to a four-year low in the second quarter, while operating margin slipped to 9.6 percent, a more than two-year low.

Musk has downplayed the trend, saying the company could sacrifice upfront earnings on each car sold and make money after the point of purchase from software updates. But that could be a risky proposition, as Musk himself has admitted he’s been overly optimistic about Tesla’s ability to deliver autonomous-driving capabilities.

Tesla will update investors on the toll that price cuts have taken on earnings when it reports third-quarter results on Oct. 18.