The price cut to the base Model Y, Tesla’s No. 1 seller in the U.S., — No. 2 in Canada, behind the Model 3 — makes it more competitive versus rivals that have been chipping away at its U.S. EV market share.
In recent guidance from the U.S. Internal Revenue Service, the two-row Model Y was given a price cap of US$55,000 to qualify for the new EV incentive of up to US$7,500 under last year’s Inflation Reduction Act. Under the previous version of the incentive, Tesla had lost of eligibility after hitting its quota of 200,000 vehicles in 2020.
With the automaker’s new pricing and assuming the full US$7,500 tax incentive for a qualifying customer, the Model Y’s effective starting price would fall to US$45,490.
Since the U.S. Treasury Department is still finalizing the incentives, it’s possible the Model Y may only qualify for a US$3,750 incentive. It’s also possible the Model Y’s price cap could increase to $80,000 after revisions if its considered an SUV rather than a car, which comes with the $55,000 cap. The IRS considers the three-row version of the Model Y an SUV.
On Twitter, Musk had complained that the lower price limit for the two-row Model Y was unfair and encouraged brand loyalists to write the IRS as part of the agency’s request for public comments.
Tesla’s price cuts suggest the automaker may have a significant demand problems amid reports that inventory has been piling up in global markets.
The base Model 3’s price was cut $3,000 to $43,990. The starting price for the midsize Model S was reduced by $10,000 to $94,990 and the midsize Model X saw an $11,000 drop to $109,990.
“This is what we call using the demand levers,” said Loren McDonald, CEO of analysis and consulting firm EVAdoption.
McDonald said potential American buyers might have put their Model Y orders on hold waiting for a firm set of rules from the U.S. Treasury Department regarding the tax incentives. The price cuts offer a strong stimulus to buy now since the US$55,000 cap is no longer an issue.
Tesla offered temporary US$7,500 price cuts in December in the United States, but only for inventory models. The new price reductions also apply to new orders.
Over the past two years, Tesla had steadily increased prices for its lineup due to strong demand for EVs and limited supply by competitors struggling with supply-chain shortages. Wait times for the base Model Y stretched to six months or more even with the hefty increases. But times have changed.
GLOBAL PRICE CUTS