Supply vs. demand: Tesla is dropping prices

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Supply vs. Demand

Tesla has dropped prices by up to 20% in the US in what appears to be a bid to fuel demand, after missing delivery targets last quarter.

The lower pricing is a double benefit for would-be buyers. The cuts mean that, for American consumers, some of Tesla’s most popular lines, like the Model Y SUV, are now below the cap needed to qualify for the $7,500 EV tax credit. And Tesla’s not just having a sale in the US either. Models in China have seen their prices slashed for the second time since September, with cuts of 13% and 17% also coming in the UK and Germany, respectively.

Tesla has spearheaded the charge into EVs for more than a decade, but they might — for the first time in their history — be seeing supply outstrip demand. For two quarters in a row, Tesla has produced more cars than they’ve delivered. That’s partly down to logistical issues faced when shipping its vehicles, but the scale of the price cuts suggest that Tesla has recognized a need to be more price competitive in order to hold onto its EV market share, which fell to 65% in the US towards the end of 2022, down from 71% the year before.

Buyer’s remorse

With an increasingly competitive EV market, an uncertain economic environment and a share price that has fallen ~65% in 2022, Tesla execs will be hoping the Econ 101 theory plays out in reality, and the lower prices stimulate demand.

Of course, recent Tesla buyers have been feeling more than a bit of remorse after learning that they've paid thousands more than if they'd waited, with some owners in China even protesting in Tesla showrooms.

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