Tesla Introduces Sub-$40,000 Models to Offset US EV Incentive Losses

Tesla has introduced more affordable versions of its popular vehicles with prices below $40,000, a strategic move to offset the elimination of US electric vehicle incentives.

The newly released standard versions of the Model 3 sedan and Model Y SUV are priced at $36,990 and $39,990 respectively, according to Tesla's website. These starting prices represent approximately 13% and 11% reductions compared to the premium longer-range variants of each model.

Tesla shares declined 4.4% on Tuesday, relinquishing much of Monday's gains that were fueled by company social media announcements. The stock has seen an increase of over 7% year-to-date.

https://x.com/Tesla/status/1975630395489345758

Since early last year, Tesla has been generating excitement about more affordable vehicles. This came after some investors and company insiders expressed concern when CEO Elon Musk decided to deprioritize development of a roughly $25,000 model. Instead, Musk has focused resources on advancing self-driving technology and humanoid robots.

"The cars are increasingly just the cash engine for Tesla's real pivot: autonomy and robotics," observed Shay Boloor, chief market strategist at Futurum Equities.

During Tesla's most recent earnings call, executives revealed that while they began building a more affordable model in June, they chose to delay production until after the US phased out federal tax credits worth up to $7,500. Chief Financial Officer Vaibhav Taneja warned that production ramp-up would be slower than originally expected.

The new Tesla models offer reduced battery range and eliminate certain features, including ambient interior lighting and a second-row screen.

Although Tesla recently achieved a record quarter for vehicle deliveries, its global sales have decreased by approximately 6% year-to-date. Electric vehicle demand in its largest market is anticipated to decline following the elimination of US incentives.

BloombergNEF analysts project US sales of battery-electric and plug-in hybrid models to decrease to around 332,000 vehicles in the final quarter of the year, down from nearly 500,000 units in the third quarter.

"The stock baked in too much excitement for this as a driver of sales," said Dave Mazza, chief executive officer of Roundhill Financial, regarding Tesla's new Model Y. "Days like this remind investors the headwinds their core business faces, regardless of the longer-term dream premium that drives the stock."