Tesla Drops Prices as Competitors Ramp Up

Laurance Yap
April 24, 2023
Tesla is the dominant electric car brand in the U.S., but it's cutting prices again in order to maintain market share as competitors from legacy car brands are introduced. The latest round of cuts brings the starting MSRP of the Model 3 to just $41,990.
white tesla electric car front exterior

Most Popular Tesla Electric Cars Get a Price Cut

While Tesla remains far and away the most popular electric car brand in the U.S., the introduction of compelling competitive models, and a broader shift towards electrification, mean that Tesla's market share dropped in 2022. In a bid to retain or regain its share, and hold off some of those competitors, Tesla has dropped prices on popular Model 3, Model Y, Model S and Model X electric cars – often numerous times in the last several months. The most recent price drop in April, cut prices on some models by up to 6 percent.

In just the most recent price adjustment for the U.S., it looks like Tesla is sacrificing a bit of its profitability – the best in the industry – in pursuit of higher volumes and greater market share. The least expensive Tesla, the Model 3 sedan, had its starting MSRP dropped by $1,000, bringing it to $41,990, excluding delivery fees. This comes as the federal purchase incentives available to Model 3 buyers is cut in half.

parked gray tesla on side of road

EV Battery Sourcing Makes a Difference

Previously eligible for $7,500, the Model 3 is only eligible for $3,750 due to the government’s newest regulations on battery sourcing, which require 40 percent of an EV battery’s critical minerals, and 50% of its components, to be sourced in the North American region, or from a U.S. free trade partner. (The other $3,750, which is contingent on North American production, still applies, as the Model 3 is made in the U.S.)

Interestingly, higher-grade Tesla Model 3s, the Long Range and Performance, still qualify for the full $7,500 tax incentive, as their batteries contain North American-sourced minerals and components.

The best-selling Tesla – and the best-selling electric car in America – is the Model Y crossover. Its starting MSRP has been reduced by up to $2,000, and Tesla has also introduced a new base model, called simply the Model Y, with a starting MSRP of $49,990. The other Model Y variants also received price drops. The Model Y Long Range now has a starting MSRP of $52,990, and the Model Y Performance is now $56,990. All Model Y variants are eligible for the full $7,500 tax incentive, so long as buyers earn less than the $150,000 individual or $300,000 household income cap.

black tesla close up of hood

Larger Tesla Models Also Reduced

The slower-selling, and much more expensive, Model S and Model X also dropped in price. The Model S sedan now has a starting MSRP of $86,630, or $5,000 less than before, while the falcon-winged Model X SUV now has a starting MSRP of $96,360, also a $5,000 reduction. Because their MSRPs exceed the $80,000 threshold set by the IRS, neither is eligible for the federal incentive.

Why the cuts now? While they still have excellent technology – and give owners access to arguably the best high-speed charging network in the country – Tesla’s models, particularly the Model S and X, are getting a bit long in the tooth. Newer entries into the market from well-known manufacturers have competitive range and performance while offering customers the reassurance of nationwide dealer networks, and come in a variety of formats, sizes, and looks. While the Model S was far ahead of its time when it was introduced in 2012, even in its refreshed form, it’s now a familiar sight on our roads, and its Tesla siblings are no different.

EV buyers now have more options than ever, and may wish to try different brands and vehicles as their needs evolve. Tesla’s price cuts are a natural response to keep demand for their vehicles strong – and will no doubt help them maintain their dominant market position.

Front view of a Tesla Model 3 driving through canyon roads

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