Tesla‘s (NASDAQ: TSLA) cars just keep getting cheaper. That’s good for consumers, but it may not be so good for Elon Musk’s electric car company, currently the most valuable automaker in the world.
The company has cut the cost of its upscale Model S sedan by $3,000. On Tesla’s website, the starting price for the Long Range Plus version is now listed as $71,990, while the souped-up Performance configuration now starts at $91,990. That comes on the heels of a $5,000 price cut in late May.
The Tesla Model S: now $3,000 cheaper. Image source: Tesla.
A shot in the arm or a shot in the foot?
The higher-priced Teslas, the Model S and Model X, generate better margins than the lower-priced Model 3 and Model Y. But sales of the S and X have been slumping even as overall sales, especially for the Model 3, have soared.
Tesla’s overall deliveries hit a quarterly record in Q3 2020, at 139,300. That’s a more than 40% increase from Q3 2019, showing that the pandemic and economic recession haven’t put a dent in Tesla’s popularity. But Model S and X deliveries only made up about 11% of that total, with 15,200 of the higher-priced models delivered during the quarter. That represented about a 7% year-over-year decline.
The automaker has been on a price-cutting spree in recent months. In addition to the Model S price cuts, Tesla slashed its Model X pricing by $5,000 in May, and its North American Model 3 pricing by $2,000 at the same time. In July, it cut the price of its Model Y by $3,000.
By introducing a lower-priced sedan and crossover SUV, which directly compete with its higher-priced sedan and crossover SUV, Tesla may be its own biggest competitor. Small price cuts seem unlikely to change that dynamic.
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John Bromels owns shares of Tesla. The Motley Fool owns shares of and recommends Tesla. The Motley Fool has a disclosure policy.
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