Tesla hikes Model 3, Model Y prices after multiple cuts this year

Tesla Inc. raised prices on its most affordable vehicles late Monday, adding $250 to the starting stickers of the Model 3 sedan and Model Y crossover after deep price cuts earlier in the year to spur sales.

According to Tesla's U.S. website, the base Model 3 with rear-wheel drive now starts at $41,880 with shipping. The base Model Y, which comes standard with all-wheel drive, starts at $48,880 with shipping.

CEO Elon Musk said on an earnings call last month that Tesla is prepared to adjust prices as needed to balance supply and demand for its vehicles, even if that reduces its industry-leading profits. Overall, Tesla has sharply reduced prices this year, although it also had made a few upward adjustments before Monday's increase.

"We're taking the view that we want to keep making and selling as many cars as we can," Musk said last month. "This is a good time to increase our lead further."

The biggest cuts came in mid-January. Before those reductions, the base Model 3 started at $48,440, and the most inexpensive Model Y started at $67,440, both with shipping. Tesla also cut prices in mid-April by $2,000 for the Model 3 and $3,000 for the Model Y.

The lower sticker prices are in addition to a new electric vehicle tax credit for buyers of the Model 3 and Model Y in the U.S. As of Jan. 1, Tesla buyers were newly eligible for a federal tax break of up to $7,500. Tesla had exhausted its 200,000-vehicle quota in 2020 under the previous tax rules.

Tesla also slashed prices in January on its flagship vehicles, the Model S sedan and Model X crossover. Nether qualify for the tax incentives because their prices exceed limits imposed by the IRS.

Analysts say Tesla is feeling the squeeze from easing demand for its vehicles and growing production capacity from new plants in Texas and Germany that opened last year. Tesla's first-quarter global sales were just 4.3 percent higher than in the previous quarter, although they remained at a record-high level.

Reuters reported late Monday that Tesla was also raising prices for the Model 3 and Model Y in China, Canada and Japan by the equivalent of about $300 for each model.

The EV maker is under pressure from Wall Street to maintain high profit margins even as it seeks to grow sales by 50 percent per year globally for the foreseeable future. The company's red-hot growth is also cooling because of greater EV competition in the U.S., Europe and China.

In the first quarter, Tesla posted its lowest quarterly gross margin in two years as a result of the price cuts, according to its April 19 earnings report. As of Monday's market close, Tesla's stock price was down 17 percent compared with a month earlier.

Tesla's general trend of slashing stickers this year is an about-face for the automaker, which had aggressively increased prices in 2021 and 2022 as demand for its EVs soared. Wait times for some versions of the Model Y stretched to six months or more as Tesla was hiking prices.

As vehicle supply improved in the U.S., Tesla offered incentives of up to $7,500 on some models in late 2022. That was replaced by the deep price cuts in January. The price of the Model Y Long Range was cut by $13,000 just as it became eligible for the federal tax incentive of $7,500.

With the latest price reductions Monday, the Model 3 Performance trim in the U.S. starts at $54,880 with shipping. The Model Y Long Range starts at $51,880, and the Model Y Performance starts at $55,880, both with shipping.

Calculating all the price adjustments this year, the base Model 3 is about 14 percent less expensive in the U.S. compared with Jan. 1, and the standard range Model Y is about 25 percent less expensive.

Tesla said it expects to produce between 1.8 million and 2 million vehicles globally this year, up from 1.37 million last year. In the first quarter of 2023, Tesla reported production of 440,808 and deliveries of 422,875.

The Texas-based automaker remains the EV leader in the U.S., although its market share has been falling.

According to Cox Automotive, Tesla likely sold 161,630 vehicles in the first quarter for a 25 percent increase over the same period last year. Tesla does not break out U.S. sales from global numbers. Cox said Tesla's EV market share fell to 62 percent from 72 percent a year earlier.

Reuters contributed to this report.