Tesla launches standard versions of Model Y and Model 3
Tesla has launched “standard” versions of the Model Y and Model 3 at starting prices of approximately $39,990 and $36,990, respectively.
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The profitability of Tesla Inc TSLA.O’s so-called affordable new cars will be a focus when the electric car maker releases quarterly results on Wednesday, but analysts believe cost savings of thousands of dollars per vehicle won’t be enough to protect profit margins.
The Standard Model Y and Model 3, introduced earlier this month, represent Elon Musk’s bet that Tesla can increase overall sales and profits through mileage, even if each vehicle itself makes less money. The billionaire CEO has prioritized robotaxis in Tesla’s future, but the company must maintain sales while new machines are developed.
The Model Y and Model 3 are priced between $5,000 and $5,500 less than their predecessors in the United States. Reducing the battery size, offering a lower-power motor, getting rid of the touchscreen on the back, and other current details saved us thousands of dollars.
“Tesla’s intent is clear: trade short-term profits for long-term network scale,” said Shay Boroa, chief market strategist at Futurum Equities, adding that he expected some cannibalization of sales of more expensive models.
The new cars offer a cheaper way to buy Teslas in Europe and Asia, where Chinese EVs are on the rise, and partially offset the elimination of U.S. federal tax credits. The credit ends in September, when a last-minute surge in U.S. sales will be reflected in quarterly results. Analysts polled by Visible Alpha expect vehicle deliveries to decline 8.5% this year, a problem Musk could address.
Analysts and investors say the standard version remains too expensive. And Tesla is taking a cautious path, removing not only basic features but also many premium features.
Sam Fiorani, vice president of research firm Autoforecast Solutions, estimates that smaller batteries and lower-power motors accounted for about 40% of the price drop. Tesla avoided major battery cuts to provide both models with a range of 321 miles (516.6 km) per full charge.
Instead, the company chose to remove many other parts, Fiorani said.
It now features ventilated vegan leather seats, ambient lighting and power-folding mirrors. Even basic features such as buttons on the side of the seat for repositioning, seat back pockets and waterproof lining on the front trunk or ‘frunk’ are gone.
“The removal of components is enough for buyers to consider moving to other models,” Fiorani said.
Tesla’s gross margins from car sales have declined in recent years as the company lowered prices and offered incentives to head off increased competition and weaker demand due to high interest rates, an aging lineup and consumer backlash against Mr. Musk’s far-right political views.
“The big question is, how much demand is increasing at this point when vehicle portfolios are getting older,” said Garrett Nelson, senior equity analyst at CFRA Research.
The results will also show the speed at which Tesla’s main profit driver is disappearing. The U.S. government has changed its policy regarding regulatory credits that traditional automakers buy from electric vehicle companies to compensate for tailpipe pollution from gasoline-powered vehicles. The new policy means that credits are unlikely to be sold in the future, and credits could also be depleted in the third quarter.
Reporting by Abhirup Roy in San Francisco and Akash Sriram in Bengaluru. Editing: Peter Henderson and Matthew Lewis
