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Tesla price cuts crank-up used values pressure and trigger ‘ill-feeling’ among customers

Tesla has triggered “ill-feeling” among customers and cranked-up pressure on residual values with the decision to slash its electric vehicle (EV) prices across the US and Europe.

On the back of a bumper December which saw Elon Musk’s EV brand register almost a third of its 2022 volume in just one month, the Californian carmaker is looking to boost demand with sweeping cuts to the list price of its vehicles.

Under the new pricing structure a Model 3’s starting price falls around 16% from £51,090 to £42,990 while the flagship gullwing door Model Y Performance variant falls almost 12% from £67,990 to £59,990.

Earlier price cuts in China have already prompted reports of car buyers storming Tesla stores to demand compensation.

For used car retailers with Tesla stock, meanwhile, the price cut could trigger a further painful slump in residual values.

Cap HPI director of valuations Derren Martin told AM back in November that Tesla Model 3 values had slumped by around £5,000 in value in just two months, with data for the last year now indicating an overall decline of 23% (around £9,900) in the last year.

Revealing its rationale behind the price cuts, a statement issued by Tesla said: “Our focus on continuous product improvement through original engineering and manufacturing processes have further optimised our ability to make the best product for an industry-leading cost.

“As we exit what has been a turbulent year of supply chain disruptions, we have observed a normalisation of some of the cost inflation, giving us the confidence to pass these through to our customers.”

Derren Martin, director valuations at Cap HPIMartin previously told AM that used EVs were declining in value faster than their petrol and diesel equivalents as a result of OEMs prioritisation of zero-emissions cars as they push to meet CAFE regulations and realise stronger margins from their most expensive models.

Speaking to AM today, he said: “It’s not just Tesla, EV values are under pressure across the board. The reality is that there is more volume coming back, they are expensive and people aren’t necessarily keen to buy at the moment after the recent press about queues for charging points and the rise in electricty costs.

“We expect used EV values to cotninue to decline, especially for expensive models and those that are close to, or even above, list value.”

Auto Trader brand director Marc Palmer and Cap HPI head of forecast strategy Dylan Setterfield  on the AM News ShowAuto Trader’s Marc Palmer highlighted the need for greater affordability in the used EV sector in an episode of the AM News Show but the extent of the trend triggered by growing Tesla volumes on the wider used EV market remains to be seen.

Paul Hollick, chair of the Association of Fleet Professionals, welcomed news of Tesla’s price cuts, but said that the move would result in “ill-feeling” and calls for redress from customers who had recently bought at the previous prices.

“In an EV market that has seen prices rising almost month-on-month recently, this is good news, we believe”, said Hollick.

“However, it has also introduced an element of disorderly marketing for Tesla, which is never good news for residual values, and it will be interesting to see the reactions of both leasing companies and the pricing guides in the next few days.

“There is also the matter of businesses that have just bought Teslas or have them on order at previous prices. The differences between the new and the old prices are substantial and a move of this kind does unavoidably create ill-feeling. The company would do well to introduce some kind of redress.”

Fiona Howarth, CEO of Octopus Electric Vehicles, was wholly positive, meanwhile. She said: “It’s no secret that the EV industry has been struggling to keep up with booming demand. The challenge for manufacturers has been to scale up quickly enough – to reduce wait times and get drivers into green cars, with low running costs.

“Tesla is the Apple of the car sector. We’re delighted to see these EV leaders cut prices. By heavily investing in their supply chain, they continue to make EVs increasingly affordable. It’s over to other suppliers to keep up – opening up low cost, fun electric driving for all.”

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