After a string of price reductions recently that lowered its profit margin to the lowest point since 2020 and created an intense price conflict, Tesla has increased pricing in its key markets for electric vehicles, including China and the United States. Last week, Tesla’s website showed that the American automaker has raised the costs of its Model 3 sedan and Model Y SUV by $289 (2,000 yuan) in China, which is Tesla’s biggest international market.
The starting price for the Model 3 Y is currently 263,900 yuan ($38,175) in China, while that of the Model 3 is 231,900 yuan ($33,546). But thanks to multiple rounds of sizable price cuts, they’re still less expensive now than they were at the start of 2023.
These two models, which make up the bulk of Tesla’s vehicle sales, have also increased in price in the U.S. The Model Y will start at $47,240 while the Model 3 will be $40,240. Additionally, in Canada, Tesla increased the cost of the models 3 and Y by around $222, while in Japan, the models increased by about $269.
In a short period of time, Tesla has increased prices twice. In the past few weeks, Tesla increased prices in the United States for its premium vehicles, the Model X and Model S, by $2,500 each. However, in quarter 1, only a more than 2.5% of Tesla’s sales were covered by these vehicles.
The latest phase of price changes undid a number of significant price reductions made by Tesla in an effort to increase demand. During the previous month’s earnings call, Tesla CEO Elon Musk reaffirmed Tesla’s pricing strategy and hinted at further price reductions to increase sales.
Analysts, however, claimed that the latest price hikes served the same function of boosting demand from consumers. According to the Citi analysts, Tesla could be attempting to change customers’ expectations for further reductions in prices in order to discourage them from continuing to watch and wait. Additionally, given that frequent price reductions may have a diminished impact on increasing volumes of sales, Tesla could be interested in testing the elasticity of demand.
Up until lately, Tesla had been cutting prices in an effort to keep up demand in the face of rising competition from the rest of the electric vehicle manufacturers. Prior to these latest price rises, the company had already slashed its prices in the U.S. at least six times in a year’s span.
These seemingly “erratic” price changes made by Tesla are likely to push other startups such as ElectraMeccanica Vehicles Corp. Ltd. (NASDAQ: SOLO) to squeeze maximum efficiency from every production process so that the pricing of their products is as competitive as possible in order to retain market share regardless of how other manufacturers alter their pricing.
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