Why the Tesla price drop has rattled current owners

Marianne Simmons, a self-professed “Tesla fan girl”, bought her second electric vehicle from the company in September: a white, high-performance Model Y, ringing in at more than $77,000.

Then the company slashed prices and she realised she could have bought the same car today at $13,000 less.

“I feel like I got duped. I feel like I got taken advantage of as a consumer,” said Ms Simmons, 32, a web designer in Naples, Florida.

“Right off the bat, I’m out $13,306. It’s such a large reduction that it’s going to affect a lot of people who just bought a vehicle.”

That’s the reality facing owners of Tesla vehicles after the company dramatically cut prices on its cars on Thursday, part of a push from chief executive Elon Musk to qualify some models for US tax credits and increase sales volume in the face of weakening demand.

For existing customers, the drop in prices of new models — some as steep as 20 per cent — also means a hit to their vehicles’ once-impressive resale value.

“For any existing owner, it’s a kick to the teeth,” said Ivan Drury, director of insights for research website Edmunds.com.

“Anyone who bought a Tesla recently will feel an immediate impact and wish they leased it.”

Mr Drury said the new-vehicle price cuts will hit used cars immediately and could lower values even further. New-car buyers want new-car smell, he said, so pre-owned prices could fall more.

Andrew Checketts, from Santa Barbara, California, said he took delivery of a seven-seater Model Y in early December after Tesla was “hounding” him with text messages promoting a $3,750 discount at the time.

If he had waited one month, he could have bought the car for much less.

“I have solar scheduled to be installed soon. Really having a hard time giving Tesla any more of my money and can’t even look at the car this morning,” Mr Checketts said. He said he instead drove a Prius on Friday.

This is an age-old problem in the car business: consumers buy a vehicle only to see a rebate advertised days later that would have saved them a few thousand dollars.

This time it’s different because dealer discounts are often limited-time sales and Tesla’s cuts are larger than the typical rebate.

Its more expensive models took the biggest hit. Model Y base prices are down 20 per cent to start at $53,000, while the performance edition of the car that Ms Simmons bought is down 19 per cent.

The larger Model S sedan’s Plaid edition was cut 14 per cent.

These downshifts in price also come as shareholders pressure Tesla and Mr Musk to increase deliveries. The company missed sales targets for the past three quarters in a row, which has rattled investors already concerned about Mr Musk’s stock sales and purchase of Twitter.

Analysts have noted that price cuts will weigh heavily on Tesla’s gross margins. Mr Musk has said he is willing to chase volumes over margins.

In a December 22 audio chat on Twitter Spaces, he said that shifting prices downwards was the best way to grow Tesla’s unit volume.

The car maker’s sales grew 40 per cent last year to 1.3 million, which was shy of Mr Musk’s 50 per cent target.

The company also said that it sold 405,278 vehicles in the fourth quarter, which missed the 420,760 average estimate compiled by Bloomberg.

While Tesla is still growing, the company opened two new assembly plants last year and analysts have expressed worry that demand for vehicles is slowing.

Resale value of Tesla vehicles has also declined. The price of one-year-old Tesla models fell 26 per cent in the second half of 2022, compared with 15 per cent for all luxury brands, according to Manheim, the largest vehicle auction in the US.

Three-year-old Teslas fell 30 per cent versus a decline of 17 per cent for other luxury brands.

Austin Flack, a television producer in Los Angeles, said he listed his 2018 Model 3 with the Full Self-Driving Beta software package for around $51,000 in December, but slashed that price to $36,000 as Tesla unloaded incentives near the end of the year. He said he’ll probably have to cut the price again to $30,000.

To be fair, Tesla owners such as Ms Simmons and Mr Flack aren’t the only car buyers who have seen their vehicles’ resale values fall.

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Used-car pricing declined 15 per cent in December after soaring the first two years of the pandemic, according to researcher Cox Automotive.

New car prices, meanwhile, hit a record high average of nearly $50,000, according to Cox.

Tesla’s pricing has had ups and downs last year. The company raised prices by 3 per cent to 5 per cent in March when semiconductor shortages were causing production cuts across the auto industry and car makers and dealers both were getting top dollar on all vehicles.

Before the most recent cuts, the company reduced prices in December by $7,500 in the US, which led analysts to believe that demand for its EVs was softening and added to a rout in the shares that went on most of last year.

This was on top of other price cuts in the US and China late last year.

The shares are down almost 65 per cent in the past 12 months.

Jack Bradham, a cloud services developer in Charlotte, North Carolina, said he’s miffed that the black Model Y long-range edition vehicle he bought in December has been devalued.

Mr Bradham, 46, ordered the car late last year and said he was told he’d have to wait until January to get it. Then he got a call on December 10 from Tesla sales saying he could get a car around Christmas.

He said he was excited for the early delivery and agreed to buy the $69,000 EV.

Now, he said, he should have waited because he may have gotten the discount if he took delivery in January; the same car now costs $12,000 less.

Mr Bradham said he hopes Tesla will give recent buyers some kind of a break, such as free charging. Ms Simmons said the company should offer the Full Self Driving feature for free.

They have little recourse.

“I would not buy a Tesla again,” Ms Simmons said. “That’s saying a lot for me. I was a huge Tesla fan girl. I’d go with a competitor like Lucid or Rivian.”