Tesla Model 3 Price Drop: Cuts $1,100, Moves Closer To $35,000 Target

Tesla Inc. has slashed the price of its mid-range Tesla Model 3 luxury all-electric sedan by $1,100 as it doggedly tries to bring the unsubsidized starting price of this vehicle down to $35,000.

With the price cut, the starting price of the mid-range now stands at $42,900 before incentives. The reduction covers all three versions of the Model 3, including rear-wheel drive, all-wheel drive and performance models.

This move is Tesla’s second price reduction this year. Tesla announced a fleet-wide price cut of $2,000 in January. This move reduced the price of the mid-range Model 3 to $42,900, which is nine percent lower than the $46,000 price tag on Dec. 31, 2018.

The mid-range Tesla Model 3 was priced at $45,000 during its launch in October 2018. The company increased the price to $46,000 five days after the car’s launch. It was forced to reduce the price by $2,000 to offset the lower federal tax credit.

Tesla said the latest price cut was primarily due to ending the company’s referral program on Feb. 1. It said this program, which was originally meant to boost demand by promoting word-of-mouth marketing, ultimately cost far more than it realized. Tesla also said the long waiting list for its electric vehicles suggest the program is no longer necessary.

The cheapest Tesla, the standard version, now costs $34,850 with the federal tax credit. This credit, however, is due to be cut in half in July. The loss of the tax credit will effectively add $1,875 to the cost of Tesla’s sedans.

Despite this, Tesla CEO Elon Musk seems committed to attaining the aspirational goal of selling the Model 3 for an unsubsidized $35,000 starting price. Musk has admitted that “it’s a super hard grind” to reach this price. But this hasn’t stopped him from trying.

Industry sources said improved battery cell design is necessary to further reduce battery costs to reach the promised base price of US$35,000.

Tesla will also have to increase the production rate and make manufacturing design improvements to reduce the price of its cars to the sought after $35,000 target. Musk, has been outspoken about Tesla attaining this goal.

Musk said Tesla ha to achieve greater economies of scale if it wanted to produce the $35,000 version of the Model 3, “and still be a viable company.” Unfortunately, Musk made this appeal as he explained the reason why he had to fire more than 1,000 more employees at Tesla’s offices and facilities in California.

He claims the firings are necessary because Tesla’s products, especially its all-electric sedans, are still too expensive for most American consumers. Musk said Tesla will focus on slashing expenses as it brings cheaper versions of the Model 3 to market.

Musk originally announced a $35,000 price tag for the Model 3. Last week, Musk said a $35,000 Model 3 will "probably be ready in about five or six months.”