Tesla Offers Discounts on Model 3 Cars in US Inventory

Overview

Tesla Inc. is offering discounts on some Model 3 cars in their inventory in the US market, following even heavier discounts in Europe this month, according to a Reuters’ review of its website. Despite raising US prices on most newly ordered cars this month, the electric carmaker is heavily discounting its cars in its inventory to clear them out as competition mounts and economic headwinds continue.

The Details

Tesla has aggressively cut vehicle prices in several regions and now resorts to traditional automakers’ tactics of offering incentives to clear inventory, analysts have said. Facing challenges, CEO Elon Musk has warned that Tesla is not immune to the global economy and predicts the next 12 months will be difficult.

The company has slightly raised prices of some new models twice this month in the US, though prices remain much lower than before the price cuts began earlier this year. The website indicates that Tesla now offers discounts of more than $1,300 on some Model 3 cars, up from $250 earlier this month on some Model Y and Model 3 vehicles. However, the $250 discount is no longer offered on Model Y. 

According to Ivan Drury, Edmunds.com director of Insight, “Tesla is beginning to rely on incentives in the same manner traditional automakers have when their dealer inventories begin to spend too much time on the lot.” These incentives signal that Tesla has begun to slightly oversupply the market, he added.

Tesla’s U.S. discounts follow deep discounts in Europe this month, as production from factories in China and Berlin outpaced demand. Tesla offers discounts of up to 3,490 euros ($3,841.79) for a China-made Model 3 and 3,660 euros ($4,028.93) for a Berlin-made Model Y, according to Tesla Info’s list of global inventory. Other markets such as France, Germany, the United Kingdom, and Italy offer similar discounts.

Tesla researcher Troy Teslike tweeted on Friday that the company solved its inventory problem in China by exporting from that market. “The problem is that the cars that are exported end up in inventory in Europe which is close to an all-time high. Now Europe has an inventory problem but not China,” Troy Teslike said. 

Tesla did not respond to Reuters’ request for comment, but Musk has acknowledged that the company’s approach is straightforward, “We see what the demand is, and then we adjust pricing to meet the demand.”

While Tesla had 15 days worth of global inventory in the first quarter of 2021 which is leaner than the industry norm, it is the company’s highest inventory in nearly three years. It is worth noting that the industry average for inventory in just the United States is 35 days. Tesla also produced more cars than it sold, which has put pressure on the company that lacks dealers to absorb its excess inventory. Analysts said that when demand slows, inventory “starts to become a drain on cash very quickly.”