Tesla’s Price Cuts Led to Significant Volume Gains in Q1

Introduction

According to U.S. new-vehicle registration data from Experian, Tesla Inc.’s price cuts in the first quarter resulted in substantial volume gains. However, the benefits came mainly from the relatively newer Model Y crossover and not its older models like Model 3 sedan, Model X crossover, or Model S hatchback. Analysts are closely monitoring Tesla’s numbers after CEO Elon Musk’s announcement that he was willing to sacrifice profits to maintain a global growth target of 50 percent a year. Tesla aims to produce between 1.8 million and 2 million vehicles globally this year.

Model Y leads the way

In the first quarter, Tesla’s U.S. registrations rose by 37 percent compared to the same period last year to 155,360 vehicles, with the Model Y contributing significantly to that number. Model Y registrations soared by 79 percent to 93,294 vehicles, representing more than one-third of all EV sales in those three months.

Price reductions and tax incentives

To incentivize buyers, Tesla cut the Model Y’s starting price from $67,440 with shipping to $56,630 by the end of the first quarter. Additionally, U.S. buyers became eligible for a federal tax credit of up to $7,500 as of Jan. 1, further providing an impetus to buy the Model Y.

The Model 3 received 11 percent more registrations in the first quarter, with the base Model 3 seeing a price reduction from $48,440 with shipping to $44,630 and qualifying for a $3,750 tax incentive.

Although both the Model S and the Model X had their prices slashed, they were still too expensive to qualify for federal EV tax incentives. Registrations for the Model S fell by 71 percent to 2,636 vehicles, while the Model X rose 34 percent to 6,545 vehicles compared with a year earlier.

Tesla’s Dominance Eroded by Competitors

Tesla’s share of U.S. electric vehicle registrations was 60 percent in the first quarter of the year, according to Experian. That’s down from 72 percent recorded during the same period last year. The competition includes EVs from legacy brands and startups, such as Rivian Automotive. This year, Tesla’s top EV rivals are Chevrolet, Ford, Volkswagen, Hyundai, and Mercedes-Benz. However, they still face supply constraints for their new EV models.

Tesla’s Year-on-Year and Quarter-on-Quarter Gains

While Tesla’s year-on-year gains were significant in the first quarter, the numbers were less impressive in comparison with the fourth quarter of last year. Tesla’s quarter-on-quarter registrations rose by 13 percent, according to Experian data, from 137,553 vehicles to 155,360. The gains were led by the Model Y, with a 30 percent increase from fourth-quarter 2022 to first-quarter 2023. Registrations of the Model X and Model S saw a decline from the fourth quarter to the first quarter.

Adjustments in Prices and Incentives

Following Tesla’s most significant price cuts in January, the automaker has made more than a half-dozen adjustments, including small price increases in May. Tesla CFO Zachary Kirkhorn stated last month that the company would adjust prices as needed but did not detail the criteria for doing so. In addition to the price cuts, Tesla is offering preferential interest rates and free access to its Supercharger network for some models. It also has revived a referral program that assigns points to Tesla owners who recommend the brand to friends and family, with points that can be used for prizes.

Conclusion

Tesla’s price cuts in the first quarter have led to significant volume gains, but they have mainly been driven by the Model Y’s success. Tesla’s dominance in the EV market has diminished due to competition. Tesla will continue to adjust its prices and offer incentives to boost sales. Based on the first-quarter data, industry forecasters predict a growth of 3.1 percent in Q2 and 670,008 vehicles sold in 2023 in the US market.