Could EVs Become Affordable After Tesla Slashes Prices?

Last week, Tesla reduced the pricing for all of its electric vehicles globally. Tesla vehicles have previously ever been less expensive, particularly during the past two years. Tesla did, however, significantly reduce the price of its vehicles in 2022 to reflect the existing market conditions.

Tesla had previously dropped its prices in China, where demand for its formerly well-liked vehicles had fallen off. However, the situation has currently returned to a high level of stability in the wake of the reduced prices.

The prices of some models saw reductions of 17% in Germany, above 18% in the Netherlands and even 23% in Norway. Such significant adjustments were not made at random; they had a purpose.

The company announced that, in addition to not producing more Model 3 vehicles because of  the market’s interest in this model, the price for the model was also hiked in favor of the Model Y, which had increasing production in Grünheide as well as in Shanghai and Texas. This had an impact on the conventional OEMs as well.

So far, Tesla has followed a compelling pricing strategy; previously, there has been numerous price rises and decreases, along with occasionally significant tweaks to the automobiles. The elimination of radar and ultrasound systems was one of those tweaks that affected vehicle pricing.

As a result of Tesla’s price adjustments, the traditional OEMs, such as BMW, AUDI, Mercedes-Benz and Volkswagen, whose models fall in the same price range, have grown overly expensive. In fact, Volkswagen recently relaunched the well-liked little eUP! car in its lineup at a staggering 30,000 euros ($32,638) without subsidies.

The likelihood of a prompt price adjustment from OEMs in Germany is uncertain. Given the current state of production expenses, it will be impossible to reduce the price of their electric vehicles. Conversely, Tesla has for a while now been consistently producing per-vehicle margins each quarter that Volkswagen and the others carmakers could only aspire to. To date, the classic manufacturers have made up for this by selling IC engines in order to seize and maintain market share in battery technology.

Another danger to EU automakers is the extremely low EV production expenses in China. The assault by automobile manufacturers, such as NIO Inc. (NYSE: NIO), BYD, XPENG and others, has only begun in Europe, in a new, more cost-conscious market. This is likely to put additional pressure on domestic EV manufacturers.

It is interesting to follow what mid-term and long-term impact the price reduction by Tesla could have on the overall industry, especially with regard to driving prices down to what most motorists around the world can afford.

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