Tesla Cuts US Prices on Most Expensive Models

Shares of Tesla fell as much as 2% today after the company reduced U.S. prices of its most expensive models.

Tesla cut the prices of its Model S sedan by 5% to $89,990 from $94,990 and its Model X SUV by 9% to $99,990 from $109,990. The company also reduced the upscale Plaid versions of each model to $109,990, down $5,000 and $10,000, respectively.

The price reductions came days after investors expressed disappointment that Tesla didn't unveil a lower-priced model at its first-ever investor day.

They also follow cuts of up to 20% on the company's lineup in January, a move aimed at spurring demand that also pushed prices below the threshold needed for buyers to qualify for a new $7,500 federal tax credit on electric cars.

Meanwhile, the decision reflects some moderation in overall new car prices, which have soared over the past two years after stagnating in the 2010s.

Rising Targets, Falling Prices

Tesla appeared on the list of the 10 best-selling U.S. vehicles for the first time in 2022. Sales of its Model Y rose 32% during the year to 252,000, ranking sixth.

The average sales price for Tesla vehicles has declined by about half in the past five years, primarily because its less expensive Models 3 and Y now account for 95% of sales. Tesla delivered 1.31 million new cars last year, 40% higher than the previous year but 900,000 shy of its goal.

Nonetheless, the company has targeted sales of 1.8 million this year, with the latest cuts aimed at meeting that goal.

Automakers Reassess Price Tags

Tesla's price trends in recent years have moved in the opposite direction of the rest of the U.S. auto industry.

Supply-chain disruptions and pent-up demand from the Covid-19 pandemic left automakers with inventory shortages in 2021. In the past two years, U.S. new car prices surged 19%.

However, analysts warn that high prices soon may turn away prospective buyers.

The average monthly payment on new cars in the U.S. has increased to $777, compared with about $400 in 2019. At the same time, U.S. and European automakers expect profit for 2023 to be about half of last year.

"Auto sentiment is very poor," RBC Capital Markets analyst Joseph Spak wrote in a note to investors late last year. "We get it. Higher (interest) rates, still high prices, low consumer confidence, a potential recession and European energy risk does not make autos a friendly place."

Perhaps heeding that warning, automakers have started to adjust. The average U.S. new car price fell 0.4% in January to $49,388 after reaching a record high in December. But it remained 5.9% higher than the same month a year ago.