Tesla cuts Model S and Model X prices in the U.S. to stoke demand

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A drivers uses a Tesla Supercharging station in Corte Madera, California, US, on Thursday, March 2, 2023.
David Paul Morris | Bloomberg | Getty Images

Tesla cut prices on its two most expensive models in the U.S., the Model S and Model X, in a renewed bid to stoke demand for its cars with aggressive discounts.

The Tesla Model S now starts at $89,990, according to the company’s website, down around 5% from where they were priced previously. The Model X, meanwhile, starts at $99,990, which marks a 9% reduction.

For the high-end “Plaid” versions of the Model S and Model X, car buyers can now expect to pay $109,990. That’s down 4% for the Model S Plaid, and 8% for the Model X Plaid.

Tesla shares were down less than 1% in morning trading Monday.

It follows a series of aggressive discounts from the company in recent months. In January, Tesla reduced prices of its new cars by as much as 20%, making the vehicles more affordable and likely eligible for federal tax credits in the U.S.

The latest price reduction is likely unrelated to EV tax credits introduced in President Joe Biden‘s Inflation Reduction Act, as they remain above the $55,000 threshold to qualify for up to $7,500 toward purchasing new vehicles.

The pace and frequency of Tesla’s price adjustments goes beyond what established automakers have attempted in the industry, where the base price of a vehicle in inventory is still referred to as a “sticker price.”

EV price war

This has ignited a price war among carmakers competing to lower their prices in a bid to lure in more customers and drive sales. After Tesla’s January price reductions, Ford slashed prices on its electric Mustang Mach-E crossover by up to 8%.

Musk has shifted Tesla’s focus of late to bringing prices down to spur demand for its products.

On the company’s fourth-quarter earnings call in January, he said Tesla was seeing orders almost doubling the rate of production. “These price changes really make a difference for the average consumer,” Musk said at the time.

EV arms race

“The price cuts Tesla has already implemented globally has catalyzed demand by 30% out of the gates as this latest price cut is another smart move,” Dan Ives, managing director of equities at Wedbush Securities, told CNBC via email.

“This is an EV arms race playing out and Tesla has the margins to make price cuts and still be well above other automakers. In this economic cloudiness Tesla needs to rip the band-aid off and cut prices and the Street will like this.”

To make discounts of those proportions, Tesla will need to match them with production cost reductions. It’s a goal the company has been pushing hard to achieve, with efforts to cut down on certain spending in its supply chain already underway.

Last week, a Tesla executive said the company was developing an EV motor that can be built without rare earth metals — which are critical to the motors used in electric vehicles — citing the need to lower costs and environmental risks that accompany the mining of these minerals.