Tesla Cuts Price of $35K Model 3, Somehow It Still Costs $42,900
It’s all BS: Tesla’s second price cut of the new year in no way drives the transaction price of the entry Tesla Model 3 to $35,000, as Tesla claims. The entry Model 3 that sold for $46,000 at the end of 2018 now, after two price cuts, goes for $42,900. Plus sales tax. Plus the fact you don’t see much availability of the no-option, single-motor, rear-drive Model 3s that carry the lowest price even if you wanted one.
In the wake of the halving Jan. 1 of the available $7,500 federal tax credit to $3,750 for Tesla vehicles, Tesla cut prices twice: $2,000 on all Teslas at the beginning of January and $1,100 this week on the Model 3 only. Tesla imputes the about-$35,000 price by factoring in the $3,750 tax credit most buyers will get when they file, and now factors in estimated savings of $4,300 versus buying a gasoline-engine compact car. That’s even though the cost of using Tesla’s once-free Supercharging can be 31 cents a kilowatt hour, two and a half times the national cost of electricity.
Tesla Model 3 sales collapsed at the start of the year. Everybody who wanted a Model 3 bought one last year when the full tax credit was still offered, and before anyone knew Tesla would take two pricing actions that made up $3,100 of the lost $3,750 tax credit. The tax credit was more valuable than a tax deduction because you got back, dollar to dollar, tax dollars you owed. And that was a catch: You had to be a US taxpayer, you had to have owed US taxes of at least $7,500 (meaning what you owed for the full year, not what you owed that you hadn’t paid by April 15), and the credit was good only the year you took delivery.
The dropoff in US Model 3 sales gave Tesla the ability to deliver Model 3s in Europe to the thousands who’d been waiting for up to three years. Where there was yet another snafu: Some of the buyers who were invited to come pick up their Model 3s arrived to find their cars weren’t available, according to Elektrek. Musk tweeted Wednesday, “Sorry, many unexpected challenges with cars coming through Zeebrugge [Belgian port of entry] first time. Cars will start moving out in volume tomorrow.
None of this reduces Tesla’s amazing feat of producing more cars last year, 182,400, than it did in all Tesla’s previous years in business. It ramped Model 3 production to 145,846 units last year, of which 138,000 were sold in the US. That’s the most US sales of any luxury vehicle, topping the Lexus RX crossover and the BMW 3 Series/4 Series compact sedans/coupes. Tesla jumped sales worldwide to 182,400 from 48,000 in 2017.
But that was then. Tesla became the first company to bump against the sales cap of 200,000 electric vehicles that triggers the beginning of the end for tax credits, after a bonus-credits period of one partial quarter (the one where Tesla passed 200,000, July-September 2018), and one additional quarter (October-December 2018). Then it’s $3,750 for six months, $1,875 for six more months, and then for Tesla, it’s gone Dec. 31, 2019.
Model 3 starting cost now ~$35k (after ~$8k of credits & fuel savings) https://t.co/46TXqRrsdr
— Elon Musk (@elonmusk) February 6, 2019
General Motors hit the 200,000-sales cap in Q4 2018, so the available credit drops to $3,750 April 1. For GM, the tax credit volume cap is spread among all its brands; Chevrolet, Cadillac, Buick, and GMC don’t get 200,000 each. The same applies to other multi-brand companies such as BMW Group’s BMW, Mini, and Rolls-Royce.
Tesla says the money to fund the $1,100 price cuts came from eliminating the buyer-referral program. Musk said it cost too much. Tesla acolytes could collect prizes such as having your photo launched into space, a toy Tesla for kids, a Powerwall, alloy wheels, cash, or credits toward a new Tesla. A handful of Tesla loyalists built YouTube sites (with the referral codes) and got enough referrals to earn a complete new Tesla.
Tesla’s Model 3 challenge going forward is to cost-reduce the car to get closer to the promised $35,000 actual selling price. Longer-term, Tesla may be bumping up against a finite demand for its EVs in 2020 when there will be no more tax credits.
In a tweet to The Drive Wednesday about the push to deliver a $35,000 Model 3, Musk said, “We’re doing everything we can to get there. It’s a super-hard grind.”
For people caught up in the carnival-barker atmosphere surrounding Tesla pricing, it’s more like a super-hard bump and grind.
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