Tesla Cuts EV Prices for the 5th Time This Year as Tax Credits Shrink

Tesla reduced the prices of all its electric car models ahead of a major change in federal EV tax credits.

Tesla just lowered the prices of its electric cars in the U.S. for the fifth time in four months as the federal government looks to adopt tougher standards in April that will reduce the $7,500 tax credit on new EV purchases.

Prices of some Tesla cars have dropped as much as 6 percent, according to the company’s website. Model 3—both the base rear-wheel drive and the all-wheel drive versions—are now $1,000 cheaper. Prices of the Model Y SUV are $2,000 lower after the new discounts. Tesla has also slashed prices on its higher-end Model S and Model X cars by $5,000.

Tesla shares closed at $185 yesterday, up 71 percent this year so far. The U.S. stock market is closed today in observance of Good Friday.

Under the Inflation Reduction Act (IRA), passed in August 2022, Model 3 and Model Y are eligible for $7,500 in federal tax credit. But starting April 18, new IRS guidance will reduce the tax rebate on the rear-wheel version of Model 3 by half to $3,750, Tesla said on its website.

Tesla has cut prices across its EV offerings multiple times this year in a bid to boost sales. The company aims to deliver 1.8 million cars this year, which would represent a 38 percent increase from 2022. It is on track to meet that target, based on delivery numbers for the first three months of 2023. However, its shrinking profit margin as a result of price cuts has some analysts worried about the company’s long-term profitability.

Last year, Tesla invested heavily in increasing its production capacity to meet its ambitious growth targets. It opened two new Gigafactories in Germany and Texas and upgraded the assembly line at its Shanghai Gigafactory in China. But Tesla seems unable to sell cars as fast as it makes them. In the first three months of 2023, Tesla produced slightly more than 440,000 cars but delivered fewer than 423,000.

Demand is particularly sluggish for the more expensive Model S and Model X vehicles. Neither model is eligible for federal tax credits because they exceed the retail price caps set under the IRA. In the first quarter, Tesla made 19,437 Model S and X vehicles but delivered only 10,695 of them, accounting for less than 3 percent of its total unit sales.