In a recent report by Bloomberg, it has been revealed that Tesla’s two best-selling electric vehicles, the Model 3 and Model Y, are strategically priced to cost less than the average transaction price for cars in the United States. This bold move, though estimated to potentially cost the company $1.2 billion annually, is a significant step towards achieving price parity with traditional gas cars and trucks.
Tesla
One striking example of Tesla’s competitive pricing is the entry-level rear-wheel-drive Tesla Model 3, which boasts a price tag of $38,990 before taxes and additional fees. This amount is a staggering $8,700 lower than the average price of a car or truck in the US, as per the Bloomberg report. Even more impressive is the fact that the Model 3 now costs $6,500 less than the entry-level BMW 3 Series and $5,800 less than the base Mercedes-Benz C-Class, making it an attractive option for consumers.
And that’s not all – when you factor in the available $7,500 federal tax credit and potential state incentives, the Model 3’s cost of ownership becomes even more compelling. According to the report, after applying the federal tax credit and accounting for fuel savings, the Model 3’s total cost of ownership aligns with that of a Toyota Corolla, a popular and economical choice among car buyers.
EPA
To put this claim to the test, let’s consider the numbers. According to the Environmental Protection Agency (EPA), the average annual gas cost for a 2023 Toyota Corolla stands at $1,650. The base MSRP for the Corolla’s entry variant is $21,900. If we solely focus on gas prices and the base MSRP, without considering maintenance and other expenses, Corolla’s three-year ownership cost would amount to approximately $26,850.
Now, let’s turn our attention back to the Model 3. Tesla’s own estimates for New York suggest around $3,000 in gas savings over three years. When you combine this with the $7,500 federal tax credit and an additional $2,000 New York State credit, the Model 3’s expected cost comes in at roughly $26,490, before taxes and fees. Keep in mind that these figures can vary regionally, and these estimates are conservative, as they don’t factor in maintenance costs, sales tax, and other fees. Nevertheless, it’s evident that the claims of price parity between the Model 3 and the Toyota Corolla are not far-fetched.
Pricing Strategy
However, Tesla’s aggressive pricing strategy and investments in the production of vehicles like the Cybertruck have had an impact on the company’s profit margins. In Q2 2023, Tesla’s profit margin dropped from 26 percent to 18.1 percent, according to the Q2 earnings call. Additionally, Tesla’s sales for Q3 2023 experienced a decline of roughly 30,000 units compared to the previous quarter due to factory downtime, with a total of 435,059 deliveries worldwide between July and September 2023.
As the electric vehicle market continues to evolve, with several affordable rival EVs in the pipeline, including the Chevrolet Equinox EV and the Volvo EX30, Tesla’s pricing strategy in the coming months will be a crucial factor to watch. In this dynamic landscape, Tesla will need to adapt and innovate to maintain its position as a leader in the electric vehicle industry.
