Tesla Model 3 Price Increase, No More $35,000 EV

The aspirational $35,000 Tesla Model 3, which would have been the cheapest Tesla electric vehicle (EV) meant for everyman, is no more.

After being on the market for only three months, this base model saw its price upped by $400 on Tuesday. The cheapest Model 3 available on or off-the-menu will now carry a price of $35,400, according to Electrek.

The $400 price hike also applies to all variants of the Model 3, including its most expensive. This means the cheapest listed Model 3 on the Tesla site now costs $39,900.

In an email to employees announcing the price hikes, Tesla said its “Model 3 base prices increased by $400. This price increase applies to all Model 3 variants, including off-menu Standard Range and Long Range Rear-Wheel Drive. Leasing for Model 3 Standard Range Plus continues to be available for $399/month.”

The price increase applies to all new Model 3 orders as of May 13 but not on inventory vehicles produced before May 12. It only began taking orders for the $35,000 Model 3 at the end of February.

The extra $400 won’t look like such a big deal to car buyers and Tesla is betting it won’t since the Model 3 in all its iterations remains its best selling EV. Analysts said the additional $400 per Model 3 will bring-in $20 million in extra revenue per quarter based on the car’s first-quarter sales.

And this amount only applies to the cheapest EV. The price hike will see Tesla’s coffers swell by hundreds of millions of dollars every quarter.

Cash-strapped Tesla needs all the cash it can get and is still hounded by rumors it’s running short of operating cash. The company didn’t help quell the rumors by selling $2.3 billion of debt and stock to raise cash earlier this month.

"At this point, sadly, every dollar counts," said Karl Brauer, executive publisher at Cox Automotive, which owns Autotrader.com.

Analysts said the original $35,000 price tag was closer to the average price of all new cars now sold in the country. The $35,000 Model 3 was key to Tesla fulfilling its promise to bring EVs to the masses.

That hasn’t come to pass because Tesla couldn’t shake-off its persistent cash flow problems. It also couldn’t make its manufacturing operations efficient enough to get the car’s price down to $35,000.

On the bright side, demand for the more expensive versions of the Model 3 remains strong. The Model 3 is currently the bestselling U.S. luxury car of any kind -- electric or gasoline. It also enjoys the same distinction in Europe.

"I would guess that Elon Musk saw a point in time years ago where he could sell a $35,000 car and make money on it," said Brauer. "So he committed to that number. Now they can technically say they have done it. But they realize it's not a good business model. They're probably losing money on each $35,000 car."