(Bloomberg) — Tesla Inc. cut prices on its best-selling models in the U.S. again, taking advantage of boosting demand and easing supply constraints.
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The carmaker dropped the starting price of the base Model 3 by $1,250 to $38,990, and gave a similar discount on the Long Range version of the sedan to $45,990.
Tesla also cut the price of the Model 3 Performance Edition by $2,250, which now starts at $50,990, and cut the price of the Long Range and Performance Edition of the Model Y sport utility vehicle by $2,000, which now start at $50,990, respectively. $48,490 and $52,490. The company re-introduced a cheaper version of the Model Y earlier this week.
Tesla shares fell 3% as of 9:45 a.m. Friday in New York. This year the stock has more than doubled.
Tesla delivered 435,059 vehicles over the past three months, down from the previous quarter and about 20,000 units less than analysts were expecting. The company will need to sell 475,000 more cars in the coming months to meet its 1.8 million target for the year.
The biggest factor contributing to Tesla’s price drop is the removal of production bottlenecks that had held the company back for years. It is accelerating new factories near Austin and Berlin opening as early as 2022, giving Chief Executive Officer Elon Musk a massive advantage over existing manufacturers who are struggling to gain traction in EVs.
Tesla opened those facilities as soon as the availability of semiconductors and other components that were in short supply during the pandemic began to improve. It is also benefiting from falling prices of lithium and other key battery materials.
Tesla still maintains a dominant position in the US electric-vehicle market, although it is becoming increasingly dependent on discounts to maintain its position. The product refresh could help pricing in the coming months, with the carmaker recently launching an updated version of the Model 3.
While Tesla’s price cuts have helped offset the effects of higher interest rates and inflation, they have also hit profitability. Automotive gross margin fell to a four-year low in the second quarter, while operating margin fell to 9.6%, the lowest level in more than two years.
Musk has downplayed this trend, saying the company could forgo upfront earnings on each car sold and make money after purchase from software updates. But this could be a risky proposition, as Musk himself has admitted that he is overly optimistic about Tesla’s ability to deliver autonomous-driving capabilities.
Tesla will update investors on the impact of the price cut on earnings when it reports third-quarter results on October 18.
(Updated with more context starting in the sixth paragraph.)
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