Tesla price cuts ignite a surge in shopping

Tesla Inc.'s price cuts across its EV lineup are having their intended effect: Shoppers are flocking to automobile websites to research America's top electric brand. That will fuel greater sales and growing market share, analysts said.

"On-site shopper consideration of Tesla vehicle pages on Edmunds jumped to 4 percent of all researched brands compared to 1.9 percent the week prior," Edmunds said Thursday. "The Tesla Model Y became the second-most researched vehicle on Edmunds, behind the Honda CR-V, up from 70th place the week prior."

As part of Tesla's surprise price reductions last week, the base Model Y crossover saw a $13,000 price drop to $54,630, including $1,390 for shipping and a $250 order fee. The cut put the Model Y below the $55,000 price cap for a new EV tax credit of up to $7,500.

The compact Model Y with optional three-row seating is eligible for the credit under the $80,000 cap, according to Inflation Reduction Act rules that qualify the three-row version as an SUV and the base two-row version as a car. The rules are subject to revision.

Until this year, Tesla did not qualify for the tax credit because it had exhausted its quota of 200,000 vehicles under the previous version of the federal incentive. Last year's Inflation Reduction Act brought back the credit for both Tesla and General Motors, which had also hit its quota, while imposing a new set of rules on local content.

With a potential savings of $20,500 on the Model Y — the bestselling EV in the U.S. and globally — Tesla will win over shoppers who had been considering other EV brands, Edmunds said.

"Consumers have grown accustomed to price hikes and the expectation to pay over MSRP for quite some time, so a discount this generous or easy to comprehend was understandably welcomed by car shoppers," said Jessica Caldwell, Edmunds' executive director of insights. "These price cuts, as well as inventory on the ground, will win Tesla market share and help consumers overlook the brand's aging lineup."

Some popular Tesla competitors, such as the Hyundai Ioniq5 and Kia EV6, lost their tax credit this year under the Inflation Reduction Act, which excludes vehicles made outside North America.

Tesla also cut prices for its Model 3, a compact sedan and the company's least expensive vehicle. Unlike the relatively loaded Model Y, the Model 3 can be purchased without all-wheel drive and with a smaller battery. The base Model Y is a long-range model with all-wheel drive, while the base Model 3 is a standard-range model with rear-wheel drive.

The base Model 3 received a $3,000 price reduction last week to a starting price of $45,630, including shipping and order fee. The Model 3 Performance, with a bigger battery and all-wheel drive, received a $9,000 discount to $55,630. Because shipping charges are not included in the price cap, both Model 3 versions qualify for the EV tax credit.

Edmunds said shopper interest in the Model 3 also spiked this week in the wake of the price cuts.

"The Tesla Model 3 moved up 36 spots to become the 11th most researched vehicle on Edmunds," it said.

Overall, interest in the brand this week was nearly at parity with Tesla's March 2022 spike when gasoline prices skyrocketed, Edmunds said.

Tesla also cut the prices of its flagship sedan, the Model S, by $10,000, for a starting price of $96,630 with shipping and order fee. The Model X midsize crossover received an $11,000 price cut for a starting price of $111,630. Neither of these midsize Teslas qualifies for the tax credit, which tops out at $80,000 for SUVs and trucks, according to Inflation Reduction Act guidance.

Tesla already had the lion's share of the EV market before the price cuts, according to new-vehicle registration data from Experian covering the January to November 2022 period.

While Tesla's U.S. EV share fell to 64 percent in the 11-month period from 70 percent a year earlier, its overall new-vehicle registrations increased to 431,740, up from 303,129 as the EV market rapidly expanded last year, Experian said.

Tesla does not disclose its U.S. sales results, so experts must estimate the company's deliveries by using registration numbers and other data.

The price cuts also spurred search results on Edmunds for current Tesla owners trying to figure out how much their used vehicles had dropped in value, since cuts to new prices depress residual values for used vehicles.

"Appraisals jumped as current Tesla owners sought real-time updates on the effect the cuts have on the value of their vehicle," Edmunds said. Search data from Jan. 13, the day Tesla announced the price cuts, shows Tesla appraisals more than tripled in volume, climbing to 3.1 percent of all vehicles, compared to 0.8 percent the day prior.

Edmunds said Tesla used-vehicle prices had already been falling sharply as they lingered on dealer lots.

"Edmunds analysts note this slowdown is the result of a unique combination of factors driving down residual values and demand, including car flippers jumping into the market as used prices hit their peak, followed by a drop in used values and interest rate hikes, controversy surrounding Elon Musk's Twitter acquisition and incentives introduced by Tesla in November and December," the firm said.