The outlook for budget Tesla buyers has changed drastically, and I expected it to change even more!

In this article, I’m mostly trying to ignore the Elon Twitter drama and TSLA stock drama and focus on how much of a change it would be for Tesla buyers interested in the Model 3 or Model Y, the two lowest-priced models right now.

I’ve been a fan of the Model 3 and Model Y, and my family currently owns two Model Y vehicles and one Model 3. I like a lot of things about Tesla, but I’ve long argued that their cost of ownership is much lower than similarly priced BMWs, Mercedes, and Audis. I’ve argued for 4 years that if you include fuel savings, maintenance and repair savings, and the latest economy in consumption (due to long life and over-the-air updates), then driving a Model 3 can be as affordable as driving a Honda Accord or Toyota Camry. The Model Y could also be more affordable, but its price has increased over the past 18 months. (Note: Aldrich Bautista (@AldrichBautista) keeps a price history tracker for Tesla cars.)

Image credit: Aldrich Bautista, Aldrich Bautista

The price of the cheapest Model Y available in the US has dropped from less than $40,000 in February 2021 (for standard RWD model) to $65,990 (for Long Range AWD model) in June 2022, an increase of $26,000 or 65% in just 16 months! Comparing apples to apples is $49,990 to $65,990, an increase of $16,000 or 32%! The stated reason for these price increases was to discourage buying so that production in Fremont, Texas, Shanghai and Berlin could ramp up and meet demand.

The Model Y became so popular that the waiting list was often 6 months or longer, and Tesla honors the price you get when you pay the $250 ordering fee. Therefore, Tesla was concerned that if people booked cars two or three years in advance and inflation caused prices of labor and materials to rise, they might get into trouble and be forced to sell the cars at break-even or a loss. I reserved the Model Y three years ago, and this spring Tesla told me I had to either buy the car or cancel my reservation. I was waiting until my daughter was ready for the car. So my daughter got the Model Y a little before she was ready, but since the price was more than $10,000 below market price, it didn’t make sense to let Tesla cancel the order.

Tesla also doesn’t believe that a very long queue makes for a good customer experience. I tend to agree that a pricing system is a good way to match supply and demand. Then people who can use cars get it better.

What has changed?

Over the past few months, some things have changed.

  1. The economy has slowed. Some people say we’re in a recession, others don’t think it’s a recession. Others (like Elon) think a recession is coming. Whatever you think, interest rates on car loans have gone up so much that the used car bubble has burst. If you want to know more about that, check out the Mannheim Used Car Index. An even more entertaining way to follow the market is to listen to Lucky Lopez on his YouTube channel.
  2. Tesla dramatically increased its production in Shanghai, and dramatically increased Model Y production in Berlin and Austin. They’ve increased production in Fremont a little bit.
  3. I would say competition has increased, but that was not a significant factor in the US. It is a more important factor in China and Europe.
  4. The Model Y isn’t quite as bargain at $65,990 as it was at $39,990.
  5. The Inflation Reduction Act was passed and several changes took effect on January 1, 2023. No one really knows if Tesla cars qualify for the $7,500 or half of the entire tax credit starting this week, but when it was announced the special rules were postponed. With the “basic requirements for metal and battery components” until April a few days ago, people came to the conclusion that everyone who builds electric vehicles in North America will have a permit in the first few months, which has caused Tesla customers to delay deliveries. Why not wait a week to save $3,750? (You wouldn’t save the full $7,500 because Tesla had offered a $3,750 credit for a few weeks.) Well, Tesla raised the credit to $7,500 the next day and threw in 10,000 free Supercharger miles for good measure (maybe worth $1,000, depending on how you use it). ).
  6. Tesla investors were worried about weak demand for Tesla cars and the stock was weak.
  7. Elon Musk has been more outspoken about his personal politics (which I’d classify as moderate to slightly right-wing, but you may not agree with them) and those views have been irritating to many progressives in the US, usually those most likely to buy a Tesla or other electric vehicle. . On the other hand, Elon’s more right-leaning views make the car more palatable to the right-leaning half of the country. Overall, I think this is a slight negative for demand, but it could happen either way – it’s too early to tell.
  8. This week, Elon was on Twitter Spaces (like Callin or Clubhouse) and he said many things, but the important thing about this article is that when asked how Tesla will handle a global recession, he replied that he could slow growth to maintain profits or increase volume quickly. Bigger and sacrifice profits. He said (consistent with Tesla’s mission to accelerate the transition to electric vehicles) that he would choose growth over profitability, as long as Tesla had enough cash reserves to avoid any chance of bankruptcy. As a Tesla shareholder, I’m not happy with this answer, but it should be welcome in the environmental community. (Note: Some seem to have forgotten how much Elon gave to the environment through his work at Tesla.)


I think we’ll see a more affordable Model 3 and Model Y over the next year. Not sure if it will be in January or April or later in the year, but with the volume Austin and Fremont are putting out their Model 3 and Model Y cars, it’s clear (and Elon clearly understands that) that Tesla needs to get vehicles available at lower price points. .

  • The Model 3 is already available for under $40,000 with Tesla credit of $7,500. On January 1st, I expect Tesla to announce that it will be eligible for a $7,500 tax credit. Tesla is also getting thousands more incentives to produce battery packs in the US. Then, depending on how demand plays out throughout the year, I’d expect Tesla to keep the price of the entry-level Model 3 (after tax credit $7,500) under $40,000 or lower it by $2,000 every few months until demand equals supply. I think the net price will probably be $35,000 and maybe less than $30,000 by the end of the year. A Tesla Model 3 priced under $30,000 would make it very difficult for Toyota to sell too many Camrys and for Honda to sell too many Accords.
  • The Tesla Model Y will see an even bigger change. I expect the entry-level price of the Model Y to drop below $40,000 (from $65,990 just a few weeks ago) when they reintroduce the Model Y’s standard rear-wheel drive (RWD) range in a few weeks or months. Then, depending on how demand is formed in 2023, the price (including the $7,500 tax credit) could drop to $35,000 or even less than $30,000. Remember, Tesla has consistently said the Model Y has similar costs to the Model 3. But with Tesla having a much larger capacity to build the Model Y and not wanting to run those giant factories below full capacity, I think they’re going to need to price the Model Y pretty aggressively.

Good car bad car Tesla is believed to sell more than 100,000 cars in the US each quarter now. They listed the Model Y as the eighth best-selling vehicle of the third quarter and the Model 3 as the eleventh best-selling vehicle. Pricing the Model 3 and Y at $30,000 to $35,000 (after tax credit) as I suggest above should allow Tesla to double sales of those two cars to about $200,000 a quarter. That’s about what I expect from Fremont and Austin production capacity in 2023 as well. This will allow the Model Y to overtake the Toyota RAV4 as the best-selling crossover and the Model 3 to overtake the Toyota Camry as the best-selling sedan. It will be a while before the Cybertruck can challenge the Ford F-150 for the best-selling truck in the USA. Let’s see how the initial production goes before I expect it to.

Disclosure: I am a Tesla shareholder [TSLA]BYD [BYDDY]neo [NIO]XPeng [XPEV]and Hertz [HTZ]. But I am not giving any investment advice of any kind here.

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