After multiple price cuts this year, the Tesla Model Y now costs less than the average new vehicle in the U.S.—EV or not. That's the conclusion of a recent Bloomberg article that compared Tesla Model Y price cuts to average new vehicle prices in 2023.
The base price of the Model Y has decreased 24% since January, the steepest price cut of any Tesla model, Bloomberg notes, adding that the Model Y and related Model 3 sedan have never been priced below the average cost of a new car in the U.S.
The current base price of $49,990 is $2,241 more than the average price of a new car in the U.S., but the Model Y is also expected to qualify for the full $7,500 federal tax credit. That lowers the effective price to $42,490, about $5,300 lower than the average price paid for a new car in the U.S. in March, according to the report, which cites Edmunds data.
Tesla has started a price war between battery and internal combustion engine cars, and it's just getting started pic.twitter.com/enFzoeuDtV— Tom Randall (@tsrandall) April 14, 2023
Bloomberg views these price cuts as transformative. Tom Randall, the author of the article, wrote that the closest analog to the Model y price cuts might be Ford's slashing of Model T prices in the 1920s, and tweeted that Tesla has started a price war with makers of internal-combustion cars.
Other factors may be at play, though. This could be a signal that the pending Model 3 and Model Y refresh is near. Tesla only reveals product information as part of financial updates and tweets from its CEO; but if Bloomberg’s analysis is any predictor, it may be soon.
Ultimately, though, Tesla’s latest sales numbers indicate that even with the price cuts, the company is falling behind on deliveries versus production—an indication it might need further price cuts. That said, Tesla has made enormous gains where EV growth is strong—like California—and it’s the only EV maker that has truly stepped up to fill demand.
2023 Tesla Model Y - Courtesy of Tesla, Inc.
Tesla has struggled to meet robust EV demand in the past. In 2016, after Tesla announced the Model 3, demand for the model startled even CEO Elon Musk. In 2021, after Tesla started running up its prices, the company pointed to a “profound awakening of desirability for EVs" that had caught it off-guard.
Established automakers are also weighing EV costs and potential demand, but with a different calculation than Tesla. Stellantis’ executive for Ram called EV pricing pressure “the elephant in the room," and the idea of an EV price war is something that Ford CEO Jim Farley has been preparing for.
Unlike Tesla, though, automakers like Stellantis and Ford have gasoline-vehicle sales as a fallback revenue source. A recent report from S&P Global Mobility underscored that especially given increased competition, full-line automakers need the profits from big gasoline pickups to support investment and expansion in EVs.