In what appears to be a surprising move from Telsa, the company reportedly reduced the price of its titular Model 3 sedan. In fact, this is not the first time the electric vehicle manufacturer did it. According to Forbes, this is already the second time the automaker cut the model’s price.
Tesla first cut the Model 3 price in January. It decided to slash prices of all its cars by more or less $2,000 after the reduction of the federal tax credit for its vehicles in the same month. Following this decision, the company recently decided to drop the said model’s prices by another $1,000. This, on the other hand, took place earlier this month. It was particularly after putting an end to its titular customer referral program.
Let’s take a look at how these cut in prices could significantly affect Tesla as a whole.
Basically, there is a necessity behind the decision to cut the price of the Model 3 vehicle. At the start of this year, the federal tax credit pertaining to the California-based company and its buyers fell to a whopping amount of $3,750, which was initially at around $7,500. This happened while the automaker was successful in crossing the threshold of 200k suggested by the government itself.
This brings to a total price cut of about $3,100 over the recent weeks. For the least expensive version of the above-mentioned model, it is said to be selling for around $42,000 for a vehicle that offers mid-range battery capacity and premium interior package.
The only catch, however, is that it would become important for Tesla to plummet further its price curve come early July. Why? That is because the tax credit is expected (once again) to drop by half; hence, efficiently making the company’s cars a lot more expensive by around $1,875. And it should be noted that the credit, on the other hand, is only going to go away come January 2020.
Since Tesla is hailed as the first car manufacturing company to lose access to the full credit – not to mentioned the growing competition in the much broader electric car market – it has no choice but to launch Model 3’s standard version priced at $35,000 in order to fight the impact.
Apparently, though, the company appears to have lots of work to do on this front alone. For starters, it is expected for the cost to go nearly $40,000 just to manufacture the said standard range and is going to happen later this year. In addition, this change only suggests that the company must come up with meaningful costs so it can make the car profitable.
It is interesting to see how Tesla managed to enable these cuts, as this is not the first time in history it made such move. The first on the list is the scaling up of Model 3 production and, thus, ultimately improving economies around scale and reduce.
As previously reported, the company decided to produce at least 5,500 Model 3 cars every week. And with this metric, there is no doubt it would soon reach the 10k vehicles by the end of 2019. Add to this the fact that the production process for the model is fond of utilizing an essential amount of automation, which really is responsible for plummeting costs.
Take for example Q4, which saw Tesla boasting a significant decline of its labor hours per Model 3 around 20 percent as compared to the previous quarter. The automaker also revealed, during that time, its decision to cut its full-time workforce to nearly seven percent in January in an attempt to save costs.