Tesla recently announced price drops of their base Model 3 and Model Y cars. The price drops—which only apply to the base models—lowered the price of the Model 3 standard range plus sedan from $37,990 to $36,990. Meanwhile, Tesla slashed the price of its Model Y SUV from $41,990 to $39,990. Tesla’s price drop did not affect premium versions of the vehicles. In fact, the price of the Model 3 and Model Y long-range cars, which have better mileage, remain the same. However, the performance version of both vehicles, boasting faster top speeds, rose. So – why did Tesla drop prices on these 2 models only?
What Is The Business Rationale Behind Tesla’s Pricing Strategy?
Tesla Model 3 and Model Y price drops indicate another crucial step by the innovative car company to offer electric vehicles at affordable prices for the average consumer. Tesla CEO Elon Musk vowed to create a “fully autonomous” electric car that would sell for $25,000 in the next three years.
However, there are risks. Tesla has been teetering on the edge of profitability for four straight quarters (achieving it only by selling carbon credits), and these price decreases won’t help in that regard.
So why make the change? Tesla hopes that by increasing interest in the base models, more consumers will be amenable to upgrades when they enter the showroom. And, even if consumers only choose the base model, they’ll subscribe to Tesla’s monthly subscription (Premium Connectivity) and drive an increase in annual recurring revenue.
Moreover, Tesla’s price drops will undercut two of its biggest competitors, the Nissan Leaf and Chevrolet Bolt. Both electric vehicles sell for $44,000. Will we see a response from Nissan, Chevrolet, or Volkswagen?
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What Can We Learn From Tesla?
Yet again, Tesla has pushed the envelope, setting another benchmark for electric cars in terms of pricing and accessibility for consumers. Tesla’s new pricing strategy for the base Model 3 and Model Y will widen the pool of prospective buyers, but the jury is still out whether that will equate to a top- or bottom-line boost.
Tesla’s base Model 3 dropped by $1,000, while the base Model Y was reduced by $2,000. Both cars are now cheaper than $40,000, an attractive price point that beats several industry competitors. The price drops indicate an emphasis by Tesla to increase market share in the growing EV market.
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