Tesla is known for its constant innovation, which leads to higher growth. Rather than taking profits, Elon Musk is focused on strategically investing for Tesla’s future growth.
Jeff Don Tesla’s battery research partner has been filing plenty of patent applications for Tesla’s new battery technology, makes it clear that Tesla is capable of producing a vehicle with an extremely high range.
However, most Tesla owners don’t use this range to its maximum extent, which is one of the reasons why I believe Tesla will soon lower the price for the Model 3 and Y.
In this article, I’m going to explain all the evidence that points to huge price changes coming for the Model 3 and Y.
The ultimate goal of Tesla has always been to accelerate the transition to sustainable energies, which is done by releasing more affordable vehicles over time.
Tesla recently lowered the price for the Model 3 in China from $45,800 to $41,300.
They did this to not only receive China’s government incentives but also because of the economies of scale, allowing the company to make such a move.
A recent report by Reuters stated that Tesla’s new battery packs with both last a million miles and cost $80 per kilowatt-hour.
The reason why that $80 per kilowatt-hour number is so revolutionary is that at $100 per kilowatt-hour, auto industry executives estimate that electric vehicles are on par with internal combustion engines.
By bringing that number below $100, this implies that Tesla’s vehicles are cheaper to produce than internal combustion engine vehicles.
According to Forbes, Tesla’s current battery packs cost $127 per kilowatt-hour; the cheapest Model 3 has a range of 250 miles with a 50-kilowatt hour battery pack.
By multiplying the $127 per kilowatt-hour number with 50-kilowatt hours, we obtain a total of $6350 to produce a 50-kilowatt hour battery pack.
At the $80 per kilowatt-hour level, this would equate to $4000 per 50-kilowatt hour battery pack, $2350 less than the current price.
Along with cheaper battery manufacturing, the economies of scale have led Tesla’s vehicles in the US to have a lot higher profit margin than before.
This was evident when we saw how Tesla’s GAAP margin, excluding credits, has continued to increase over the past few quarters.
The last piece of evidence pointing towards a price decrease is the evolution of Tesla’s vehicles with no change in price.
By 2021 the Tesla Model Y will soon retail for $40,000 with the release of the cheaper version.
On the other hand, Tesla Model 3 currently goes for $40,000 when ordering online. From a business perspective, this makes no sense, the Model Y is the more advanced vehicle out of the two, yet it will cost the same price.
Sandi Monroe’s analysis of the Tesla Model Y has revealed how much better it is to build a vehicle compared to Mode 3.
The fact that the Model Y will go for the same price when ordering online would obliterate the sales of the Model 3.
The $40,000 Model Y currently isn’t available. And once it is released, it only makes sense to decrease the price of the Model 3.
The year after the $40,000 model Y is released, the $40,000 Tesla cyber truck will be available.
Again, since the cyber-truck is technologically a more advanced vehicle, it would only make sense to lower the price of the Model Y.
However, since the $40,000 cyber truck won’t be released for a while, we can put that aside for now and focus on Tesla’s upcoming price change for the Model 3.
Now with cheaper manufacturing, Tesla can take two routes, lower the price of Tesla’s current vehicles or take extra profits.
Tesla currently has about eight billion dollars in cash, from the perspective of Elon Musk.
It wouldn’t be a smart decision to take profits when that money could be used to fuel more demand for Model 3 in the US.
Tesla’s current goal is to take as much market share as they can from traditional car manufacturers, and by lowering the price for Model 3.
This would allow Tesla to compete with the cheaper electric vehicles legacy automakers are releasing.
It’s not a special occasion for Tesla to update their current vehicle specs and price. In March of 2019, Tesla dropped the price of both the Model S and X by $12-18,000.
By fixing up the wiring with the style Tesla had in the Model Y, and changing the battery system, Tesla will be able to lower the price while offering a better vehicle.
It has happened in the past with the Model S and X, and it should be able to fuel up some more demand for Model 3.
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