Tesla tries to claim massive price cuts are due to ‘partial normalization of cost inflation’

Tesla has commented on the new massive overnight price cuts on Model 3 and Model Y and claimed that they are due to “a partial normalization of cost inflation.”

We reported last night that Tesla implemented massive price cuts of up to $13,000 on Model 3 and Model Y vehicles in the US.

Similar price cuts are being reported in other markets, such as Canada and Europe.

While Tesla doesn’t have global or US press relations department to ask the company to comment on those price cuts, it still does in some markets, and a Tesla spokesperson in Germany commented on it.

The Tesla spokesperson tried to claim the price drop was due to “a partial normalization of cost inflation”:

At the end of a turbulent year with interruptions to the supply chain, we have achieved a partial normalisation of cost inflation, which gives us the confidence to pass this relief onto our customers,

This mirrors comments made by a Tesla China executive after a similar price drop in the market last week.

The price drop in some markets marks the first time Tesla has reduced prices after almost two years of gradually raising them to new all-time highs.

Electrek’s Take

I am happy to see Tesla vehicles being much more accessible, but I honestly don’t know who is buying this explanation.

Let’s be honest, Tesla is significantly slashing prices right now because it has to. It needs to increase demand to match its new production capacity.

Tesla gradually and incrementally increased prices for two years during the rise in inflation. And honestly, we already knew that inflation wasn’t the only reason. Yes, it was partly contributing to the price increases, but Tesla was also just increasing the prices because demand allowed it. That is made clear by its gross margins gradually increasing while raising those prices.

Now Tesla wants us to believe that it is basically erasing those two years of incremental price increases “due to inflation” because of a “partial normalization of cost inflation.”

I don’t think so. It has more to do with the fact that Tesla had its two biggest discrepancies between cars produced and cars delivered during the last two quarters, and now it finds itself with a lot of cars in inventory in some markets early in a new quarter.

However, an interesting aspect is that Tesla can actually afford to cut the prices by that much thanks to its industry-leading gross margin.

The price drops are significant enough that Tesla is now undercutting many other new EVs coming from the competition.

It is certainly making the EV market much more interesting, especially in the US with the new tax credit coming into effect.