Tesla price cuts: Flagging demand or tactic to boost sales?

In explaining why Tesla Inc. keeps cutting prices on its electric vehicles, the auto industry is pretty much divided into two camps.

On one side are analysts who see an aggressive move by the leading manufacturer of EVs to gobble up sales and market share from its competitors just as they’re beginning to bring more vehicles to market.

On the other side are critics who argue that with demand for Tesla’s older vehicles beginning to wane, the company feels forced to slash prices to attract buyers.

Over the weekend, Tesla cut the prices of its two costliest vehicles, from $5,000 to $10,000, or from 4.3% to just over 9%. A Model S two-motor sedan now starts at $89,990, with the Plaid “performance” version beginning at $109,990. A Model X SUV dual motor starts at $99,990, the performance version at $109,990.

It was the company’s second price cut of the year in the United States. In January, Tesla slashed prices on several versions of its EVs, making some of them eligible for a new federal tax credit. The company cut U.S. prices nearly 20% on some versions of its top-selling Model Y SUV. It also reduced the base price of the Model 3, its least expensive vehicle, by about 6%.

Seth Goldstein, an analyst at Morningstar, suggested that Tesla is trying to strike a balance between securing the best prices possible and sustaining buyer demand so that its factories run fast enough to reduce the cost of producing each vehicle.

The company does have higher profit margins than other automakers, Goldstein said, in part because it has devised more efficient manufacturing methods and because EVs have fewer moving parts to assemble

“This could be a way for Tesla to hold off some of the new entrants” into the EV market, Goldstein said. The company is sending a message to rivals that “you have to offer the best technology at a compelling price while keeping your costs down.”

Goldstein said he doesn’t foresee additional Tesla price cuts this year, unless the U.S. economy were to slide into a recession.

Sales of the Models S and X represent only a fraction of Tesla’s overall sales, but they had been rising over the past two years. Still, from the third quarter of last year to the fourth quarter, their sales fell just over 8%.

Sam Abuelsamid, e-mobility analyst for Guidehouse Research, noted that both models are expensive, out of reach of mainstream buyers. And they are aging, another factor in their flagging sales: The S debuted in 2012, the X in 2015.