The outlook for budget Tesla buyers has changed radically and predicts it will change even more!

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In this article, I try to mostly ignore the Elon Twitter drama and the TSLA stock drama and focus on how much has changed for Tesla buyers interested in the Model 3 or Model Y, its two lowest-priced models right now.

I’m a Model 3 and Model Y fan and my family currently owns 2 Model Y and 1 Model 3 vehicles. I like many things about Tesla, but I’ve long argued that the cost of ownership for their vehicles is much lower than cars BMW, Mercedes and Audi that are similarly priced. I’ve argued for 4 years that if you factor in fuel savings, maintenance and repair savings, and more recently depreciation savings (due to long life and overhead upgrades), driving a Model 3 can be as affordable as driving a Honda Accord. or Toyota Camry. The Model Y may also be affordable, but its price has skyrocketed over the last 18 months. (Note: Aldrich Bautista (@AldrichBautista) maintains a Tesla Car Price History Tracker.)

Image credit: Aldrich Bautista @AldrichBautista

The cheapest Model Y available in the U.S. went from under $40,000 in February 2021 (for the Standard Range RWD) to $65,990 (for a Long Range AWD) in June 2022, an increase of $26,000 or 65% in just 16 months! Apples to apples comparison is $49,990 to $65,990, an increase of $16,000 or 32%! The stated reason for these price increases was to discourage buying until production in Fremont, Texas, Shanghai and Berlin could increase and satisfy demand.

The Model Y became so popular that the waiting list was often 6 months or longer, and Tesla honors the price you get when you pay the $250 order fee. If they booked cars two or three years in advance and inflation caused the price of labor and materials to rise, they could run into trouble and have to sell the cars at break-even or at a loss. I reserved a Model Y three years ago, and this spring Tesla told me I had to buy the car or they would cancel my reservation. I was waiting until my daughter was ready for the car. So my daughter bought a Model Y just before it was ready, but since the price was more than $10,000 below the market price, it didn’t make sense to let Tesla cancel the order.

Tesla also doesn’t think that a good customer experience has a very long waiting list. I tend to agree that pricing is a good way to match supply and demand. So the people who can use the cars best get them first.

What has changed?

In recent months, some things have changed.

  1. The economy slowed down. Some people say we’re in a recession, some people don’t think it’s a recession. Others (like Elon) think a recession is coming. Whatever you think, interest rates on car loans have gone way up and this has caused the used car bubble to burst. If you want to know more about this, check out the Manheim Used Vehicle Index. A more fun way to keep up with the market is to listen to Lucky Lopez on his YouTube channel.
  2. Tesla greatly increased production in Shanghai and significantly increased Model Y production in Berlin and Austin. They ramped up production a little bit in Fremont.
  3. I could say competition has increased, but that hasn’t been a big factor in the US. It’s more of a factor in China and Europe.
  4. The Model Y is simply not as good a deal at $65,990 as it is at $39,990.
  5. The Inflation Reduction Act passed and many of the changes took effect on January 1, 2023. No one really knows whether Tesla vehicles will qualify for the full $7,500 or just half of the tax credit starting a week later, but when it was announced that the rules on “critical mineral and battery component requirements” were pushed back until April, a few days ago people came to the conclusion that everyone who builds EVs in North America will get a pass for the first few months, and this caused Tesla customers to delay their deliveries. Why not wait a week to save $3,750? (You wouldn’t save $7,500, since Tesla is giving $3,750 credit for a few weeks.) Well, Tesla increased the credit to $7,500 the next day and threw in 10,000 free Supercharger miles to be sure (in the worth perhaps $1,000, depending on how you use them).
  6. Tesla investors are concerned that demand for Tesla vehicles is weak and the stock is weak.
  7. Elon Musk has been more vocal about his personal politics (which I classify as moderate to slightly right-wing, but you might disagree) and these views have troubled many progressives in the US, traditionally those most likely to buy a Tesla or other electric vehicle. On the other hand, Elon’s more right-wing views are making the car more acceptable to the right-leaning half of the country. Overall, I think this is a bit of a downside for demand, but it could happen either way – it’s too early for me to say.
  8. This week, Elon was on Twitter Spaces (like Callin or Clubhouse) and said a lot of things, but what’s significant for this article is that when asked how Tesla would handle a global recession, he replied that it could slow growth to preserve profits or increase volumes faster and sacrifice profits. He said (consistent with Tesla’s mission to accelerate the transition to electric vehicles) that he would choose growth over profitability as long as Tesla had sufficient cash reserves to avoid any chance of bankruptcy. As a Tesla shareholder, I’m not thrilled with this response, but it should be welcomed by the environmental community. (Note: Some seem to have forgotten how much Elon, through his work at Tesla, did for the environment.)


I think we’ll see a more affordable Model 3 and Model Y available next year. Not sure if it will be in January, April or later in the year, but with the volume Austin and Fremont are putting out of Model 3 and Model Y vehicles, it’s clear (and Elon clearly understands this) that Tesla needs to have vehicles available. at lower prices.

  • The Model 3 is available now for less than $40,000 with Tesla’s $7,500 credit. On January 1st, I expect Tesla to announce that it will be eligible for the $7,500 tax credit. Tesla also receives thousands of other incentives to produce batteries in the United States. So, depending on how demand goes throughout the year, I expect Tesla to either keep the Model 3’s base price (after the $7,500 tax credit) under $40,000 or lower it by $2,000 every few minutes. months until demand equals supply. I think the net price will likely go up to $35,000 and possibly under $30,000 by the end of the year. A Tesla Model 3 for less than $30,000 would make it very difficult for Toyota to sell many Camrys and for Honda to sell many Accords.
  • The Tesla Model Y will see a bigger change. I expect the base Model Y price to drop below $40,000 (from $65,990 just a few weeks ago) when they reintroduce the standard rear-wheel drive (RWD) Model Y in a few weeks or months. Then, depending on how demand shapes in 2023, the price (including the $7,500 tax credit) could drop to $35,000 or even below $30,000. Remember Tesla has always said that the Model Y has similar costs to build as the Model 3. But with Tesla having a lot more capacity to build the Model Y and not wanting these gigafactories to run at less than full capacity , I think they will need to price the Model Y very aggressively.

good car bad car thinks Tesla sells over 100,000 vehicles in the US every quarter now. They listed the Model Y as the 8th best-selling vehicle in Q3 and the Model 3 as the 11th best-selling vehicle. Pricing the Model 3 and Y at $30,000 to $35,000 (after the tax credit), as I suggested above, should allow Tesla to roughly double sales of these two cars to around 200,000 per quarter. That’s more or less what I expect Fremont and Austin production capacity to be in 2023 as well. This will allow the Model Y to overtake the Toyota RAV4 as the top-selling crossover and the Model 3 to overtake the Toyota Camry as the top-selling sedan. It will be a while before the Cybertruck can challenge the Ford F-150 as the best-selling truck in the US. Let’s see how the initial production goes before I predict that.

Disclosure: I am a Tesla shareholder [TSLA]BYD [BYDDY]Nio [NIO]XPeng [XPEV]and Hertz [HTZ]🇧🇷 But I don’t offer any kind of investment advice here.


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