Tesla just started an electric car price war, and it's bad news for Ford and GM

  • Tesla has discounted its Model 3 and Model Y cars by up to 20% in a bid to goose sales.

  • More affordable pricing at Tesla spells trouble for legacy car companies entering the EV market.

  • "This is a clear shot across the bow," Wedbush analyst Dan Ives said.

Tesla is kicking off an electric vehicle pricing war by slashing the prices of its most popular vehicles in the US, Europe, and China.

Thursday night, Elon Musk's automaker rolled out discounts ranging from 6% to 20% on the popular Model 3 and Model Y vehicles. These latest price cuts come as Tesla's US vehicles newly qualify for an additional $7,500 tax credit on new EVs as part of the Biden administration's Inflation Reduction Act. The starting price of a Model S also dropped nearly 10%, while the Model X is down 9%.

Once a luxury item, Tesla's vehicles will now compete with EVs marketed to more average car buyers. With the starting price of a Model 3 now coming in at $43,990 — before the tax credit — Tesla's most popular EV can compete with the mass-market offerings from legacy competitors entering the plug-in market en masse this year.

The Model 3's price now compares to GM's Chevrolet Bolt, which starts around $30,000. The Chevy Blazer EV, coming this summer, is expected to start at $44,995. Ford recently hiked the starting price on its F-150 Lightning electric truck to $56,000, up from the original starting price of $40,000.

Wedbush analyst Dan Ives called this a "strategic poker move" by Musk, and said the loss on margins is a strategic play as Tesla defends its territory as a global top seller of electric vehicles.

"This is a clear shot across the bow at European automakers and US stalwarts (GM and Ford) that Tesla is not going to play nice in the sandbox with an EV price war now underway," he wrote in a Friday note.

Tesla is trying to manage a drop in demand

Tesla's price cuts also come as the car company appears to be struggling with a drop in demand for its technology-laden electric cars. Analysts worried that deep discounts offered during the holiday season were a sign of over-building at Tesla.

The electric car company has long resisted traditional auto industry discounts, and Musk has even criticized the practice in the past. Tesla spent most of 2022 hiking the prices on its vehicles amid rapid inflation, making the most recent spate of price cuts an about-face from the company's previous strategy.

To some auto industry experts, this is all a sign that Tesla is finally becoming a regular car company – a welcome sign for investors weary of Musk's antics at Twitter. Shares of Tesla dropped 65% last year to bring its market value to around $349 billion. That's a steep drop from Tesla's historic $1 trillion market cap achieved in October 2021.

Correction: January 17, 2023 — An earlier version of this story misstated the price of the Model 3. The car starts at $43,990, not $53,990.

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