Why Tesla Just Dropped Its Car Prices by $2,000

Andrew Moseman
Photo credit: Tesla

From Popular Mechanics

Your electric dream car just got a little cheaper. Tesla Motors announced yesterday that it would cut the prices of all its cars by $2,000, news that may have thrown Wall Street into a fit but could be good news for people waiting to buy one of Elon Musk's EVs.

The major reason for the price cut is the expiring federal tax credit for buying a Tesla, a fact that was already throwing the electric car market out of whack. The U.S. allows a $7,500 credit for buying electric, but only for the first 200,000 EVs a company sells. Tesla passed that milestone last year, which means its credit is dropping to $3,750 for buyers whose cars are delivered in the next six months. By sometime next year, the credit will drop to zero.

Musk and company always knew this day would come, of course. But the expiring credit raises some big questions about demand-that is, how many people who would've bought a Tesla Model 3 with a $7,500 discount will drop out when the credit is reduced and eventually disappears. It's an issue that's especially worrisome given that Tesla is still making the pricier, more optioned-out Model 3s and seems far away from building the $35,000 base model that enticed so many people to put down a deposit on an electric future.

Meanwhile, the strange economics of electric car buying aren't just affecting Tesla. As we reported yesterday, GM is reportedly about to cross the 200,000-car mark, which would trigger a phaseout of its full $7,500 credit on electrics like the Chevy Bolt-potentially bad news for people who might be shopping for Tesla alternatives as the tax credits wane and vanish.

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