The new Tesla Model Y is introduced. Tesla has expanded its model range to include an SUV based on the current Model 3.
Hannes Breustedt | picture alliance | Getty Images
Tesla cut the price of its newest offering, the Model Y, by $3,000, just four months after starting deliveries to customers. On Sunday, CEO Elon Musk also said the company was cancelling plans to produce a less-expensive standard-range version of the crossover SUV, saying that its expected range of less than 250 miles would be “unacceptably low.”
Now, the lowest-priced Model Y, the long-range all wheel drive version, starts at $49,990, according to Tesla’s website. The standard-range version would have started at $39,000.
The Model Y moves indicate demand for Tesla’s electric vehicles is flagging in the company’s home base of the United States, says Vicki Bryan, CEO of investment research firm Bond Angle.
According to Bond Angle estimates, Tesla faced more than a 50% drop in demand for its Model 3 sedans in the U.S. in the second quarter, and has yet to see high demand for the Model Y since launching it, despite positive reviews by auto critics.
But selling Model 3s for the first time in China, where Tesla operates a plant in Shanghai, helped its second-quarter numbers. Tesla said it delivered about 90,650 vehicles in the second quarter, beating analyst estimates. But Tesla has been combining Model 3 and Model Y totals in its vehicle production and delivery reports at the end of each quarter, so there’s no easy and precise way for shareholders to gauge the success of the Model Y.
Also, Tesla has never disclosed how many pre-orders came in for the Model Y. Musk and Tesla have in the past talked about pre-orders for other vehicles including the Model Y’s predecessor, the Model 3, and successor, Cybertruck.
Bond said, of Tesla’s Model Y moves this week: “This seems to confirm my concerns that Model Y actually isn’t profitable, as Musk has claimed. Even after effectively narrowing its Model Y offering Tesla still needs to lower price to encourage demand.”
Tesla shares have rallied dramatically over the past two weeks on speculation that the company will report a profitable second quarter — its fourth consecutive quarter in the black, and first full year of reported profits. This achievement would meet one of the main requirements for inclusion in the S&P 500.
Tesla CEO Elon Musk sent multiple emails to his tens of thousands of employees last month, some of which leaked and helped convince investors profitability is nigh. But the emails also revealed Tesla’s struggles to make the Model Y a success.
In an e-mail sent June 6, Musk wrote:
“It is extremely important for us to ramp up Model Y production and minimize rectification needs. I want you to know that it really makes a difference to Tesla right now.
Model Y, especially GA, is the top priority for both production and manufacturing engineering. GA4 is also top priority for facilities improvements. For those working in GA4, thank you for bearing with tough conditions. Will get better fast. I will be walking the line personally every week.
We are doing reasonably well with S, X and 3, but there are production and supply chain ramp challenges with Model Y, as is always the case for new products.
Please let me know if there’s anything I can do to help.”
In another email sent June 29, Musk wrote:
“Breaking even is looking super tight. Really makes a difference for every car you build and deliver. Please go all out to ensure victory!”