Tesla Aim to Become America’s Top-Selling SUVs

Elon Musk is dead intent on capturing a significantly larger share of America's SUV market, as seen by Tesla Inc.'s sixth price decrease this year.

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Last year, Tesla's Model Y was one of the top three best-selling sport utility vehicles in the United States. It was impressive given that the Model Y's beginning price was more than double that of the market's longtime favorites, the Toyota RAV4 and Honda CR-V.

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That pricing barrier has now been lowered to the size of a speed bump. Tesla has reduced the base price of the Model Y by 24% since January, the most of any of its vehicles. Furthermore, Model Y is now eligible for $7,500 in federal tax credits for the first time. Taking this into consideration, an all-wheel-drive Tesla SUV with a range of 279 miles can now be purchased for 10% less than the average price of a new car sold in the United States.

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Since the beginning of this year, Bloomberg has been tracking how much Tesla costs for its models in comparison to the industry average (see the earlier reports here and here). Continue reading for four themes that have evolved from the company's most recent cutbacks.

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The Model Y drop is game-changing.

A 24% price drop in three months for such a high-volume car is nearly unheard of. The Model T, which Ford substantially reduced in price in the 1920s thanks to the moving assembly line, maybe the closest approximation.

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The Elon Musk Pricing War

How do Tesla's best sales compare to the typical new automobile in the United States?

Data sources include Tesla.com, Bloomberg Intelligence, and Edmunds.

Note: The differential is the price of each Tesla basic model less the average price paid for a new automobile in the United States.

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The Model Y now starts at $49,990, or $42,490 if you qualify for the federal tax credit. According to Edmunds, this is nearly $5,300 less than the average price paid for a new vehicle in the United States for March.

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Tesla's premium models have never been more affordable.

The base models of the Model 3 and Y have never been less expensive in comparison to the average new vehicle selling price. In late 2020, the Model S and X were slightly less expensive on this basis.

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Tesla's Pricing Have Dropped

The most affordable Model Y costs 24% less than it did in January.

The Model 3 Standard Range now starts at $41,990. As of April 18, it is eligible for a $3,750 federal tax credit, bringing the price down to $38,240 for qualified buyers. That's significantly cheaper than the BMW 3 Series — a car it's frequently compared to — which begins at $44,000.

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Keep an eye out for updates.

Tesla's continuously shifting costs are unique in the car business, albeit they tend to correspond closely with the larger US market, as Bloomberg discovered earlier this year. The base Model 3, for example, has seldom deviated from the US average in recent years, although the Model S has regularly cost almost twice as much.

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Tesla's prices are no longer so high.

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Three of Tesla's four vehicles have record low costs when compared to the average new vehicle sold in the United States.

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Premiums are calculated as a percentage of the average new car price in the United States.

Prices have only recently deviated from these patterns once before, in late 2020, soon before Tesla changed the interiors of the Model S and X. Prices skyrocketed immediately after the new versions were released.

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It's unclear if that dynamic will be repeated with the Model 3 and Y, which will be upgraded later this year, according to Trade Algo. The Model S and X update coincided with supply shortages, which drove up industrywide costs. Prices have fallen as a result of the interruptions.

Is this bad news for other automakers?

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Experts are divided on whether Tesla's price drops reflect diminishing demand or are part of a long-term strategy to grow its addressable market while lowering expenses. Nonetheless, the price cuts put more pressure on other automakers, which were already struggling to make a profit from manufacturing electric vehicles.

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Tesla has initiated a pricing war between the battery and internal combustion engine automobiles, and it is only getting started.

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