Elon Musk Targets the Average Joe and Jane

Tesla slashed prices for the sixth time this year. The Model Y SUV, its most popular vehicle, costs under $40K after the federal tax credit.

Tesla wants to be the car brand for everyone.

To wealthy consumers in big cities and affluent suburbs as well as to the middle class in the heartland of America, the automaker wants to sell.

The electric-vehicle giant also wants to break the brand’s image as simply a way that affluent progressives can fight climate change.

The Austin company, which promises to help build a sustainable-energy economy in the coming years, this year launched an unprecedented price war. 

Tesla  (TSLA) – Get Free Report and Chief Executive Elon Musk have lowered their prices six times. The most recent reduction occurred overnight April 18.. 

The move now makes Tesla cars affordable to more people, especially after they deduct the $7,500 federal tax credit for clean vehicles. 

The list of clean vehicles eligible for this tax break, , published the same day by the Treasury Department, includes the two flagship models of Tesla and their variants: the Model 3 sedan and the Model Y midsize SUV.

Tesla Model Y vs. Ford Mustang Mach-E

The Model 3 performance sedan and the Model Y and all variants (all-wheel-drive, long-range all-wheel-drive and Model Y performance) qualify for the full credit. The standard Model 3 rear-wheel drive is eligible for half the tax break — $3,750 — because some elements of the battery are made in China.

Tesla has just lowered the prices of its two popular models by $2,000 to $3,000.

Here’s the new pricing on the Model Y midsize SUV:

Model Y AWD is base priced at $46,990, down from $49,990. Model Y Long Range now costs $49,990, down from $52,990. Model Y Performance is now $53,990, down from $56,990. 

The price drop is about 6% for the basic Model Y and 5.6% and 5.2% respectively for the other two.

Consumers who buy these three variants beginning April 19 will be able to deduct the federal tax credit of $7,500. After this federal incentive, the base Model Y now starts at $39,490.

The Model Y SUV thus becomes more attractive for many consumers than its biggest rival, the Ford  (F) – Get Free Report Mustang Mach-E, which is base-priced at $45,995. This model is eligible for half the federal tax credit. After deducting the $3,750 credit, the Ford Mustang Mach-E has a starting price of $42,245.

For the first time in three years, a Tesla vehicle has a base price substantially below $40,000

That’s the Model 3 rear-wheel drive, which now costs $39,990, down 4.7%, or $2,000, from $41,990. When the federal tax credit of $3,750 is accounted for, the base price of the Model 3 RWD becomes $36,240.

A Tesla Now Costs Under $40K

In all this year, the price of the base Model 3 is down about 15% and the base Model Y is down by 29%.

Some experts see the moves as a price war. Musk says the goal is to make Tesla cars affordable to more people.

“We’re not ‘starting a price war’, we’re just lowering prices to enable affordability at scale,” the billionaire said on Twitter on April 16.

Whatever one calls the move, Musk is expected to provide more color on this downward price strategy when the company today reports first-quarter results and holds a conference call. 

Analysts are worried that the price cuts will eat into Tesla’s profit margins. But the tradeoff is that the automaker could increase its market share as competitors — EV upstarts Rivian  (RIVN) – Get Free Report and Lucid  (LCID) – Get Free Report, and legacy carmakers like Ford and General Motors  (GM) – Get Free Report, struggle to make money on EVs because their production and sales volumes are still low.

“Thus far in January, we’ve seen the strongest orders year-to-date than ever in our history,” Musk told investors during the fourth-quarter-earnings call in January, after Tesla cut its prices for the first time. 

“We currently are seeing orders at almost twice the rate of production. So I mean, that — it’s hard to say whether that will continue twice the rate of production, but the orders are high.”

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