Tesla Model 3 qualifies for $5,000 federal rebate again as automaker slashes all prices

Tesla Inc. slashed prices across its four-vehicle lineup late Jan. 12, after missing its delivery forecast for last year.

On its Canadian website, Tesla now lists its Model 3 with all-wheel-drive — its entry-level vehicle in Canada — at C$54,990, before shipping.

That's a reduction of C$5,000, or about 11 per-cent, over the crossover's previous price, and it now ensures the vehicle qualifies for the federal Incentives for Zero-Emission Vehicles (iZEV) program. After Tesla hiked its Model 3 price in November 2021, the vehicle was disqualified from the program, which offers a C$5,000 federal rebate.

The price reduction now puts the Model 3 below the C$55,000 price cap for the incentive. Previously, the crossover started at C$59,990 before shipping and fees. In Canada, Tesla charges $1,990 in delivery and fees, which don’t affect qualifying for the federal rebate.

Tesla also reduced prices significantly for the Model S midsize sedan, Model Y and Model X midsize crossovers after coming up short of its own expectations for global 2022 deliveries.

In Canada, the Model Y price fell to C$69,990, down nearly 18 per cent from C$85,000. The price for a Model S fell 11 per cent to $122,990 while the starting price for a Model X dropped to C$142,990, down 10 per cent.

Tesla delivered more than 1.31 million cars for the year, falling short of its 50-per-cent growth forecast. Vehicle deliveries rose 40 per cent last year while production grew 47 per cent to 1.37 million, Tesla said earlier this month. CEO Elon Musk had predicted 50-per-cent growth for 2022.

In the United States, Tesla cut its price of the Model Y Long Range with all-wheel-drive by 20 per cent, knocking off US$13,000 to price it at US$52,990, before shipping.

Reuters reported Friday that Tesla had also cut Model 3 and Model Y prices Germany by one per cent to 17 per cent depending  on the configuration.

Musk had warned last month that higher U.S. interest rates and a slowing economy could push the automaker to reduce prices to maintain its growth momentum. Musk also said lower prices would also reduce profit.

MORE COMPETITIVE

The price cut to the base Model Y, Tesla's No. 1 seller in the U.S., — No. 2 in Canada, behind the Model 3 — makes it more competitive versus rivals that have been chipping away at its U.S. EV market share.

In recent guidance from the U.S. Internal Revenue Service, the two-row Model Y was given a price cap of US$55,000 to qualify for the new EV incentive of up to US$7,500 under last year's Inflation Reduction Act. Under the previous version of the incentive, Tesla had lost of eligibility after hitting its quota of 200,000 vehicles in 2020.

With the automaker's new pricing and assuming the full US$7,500 tax incentive for a qualifying customer, the Model Y's effective starting price would fall to US$45,490.

Since the U.S. Treasury Department is still finalizing the incentives, it's possible the Model Y may only qualify for a US$3,750 incentive. It's also possible the Model Y's price cap could increase to US$80,000 after revisions if its considered an SUV rather than a car, which comes with the US$55,000 cap. The IRS considers the three-row version of the Model Y an SUV.

On Twitter, Musk had complained that the lower price limit for the two-row Model Y was unfair and encouraged brand loyalists to write the IRS as part of the agency's request for public comments.

Tesla's price cuts suggest the automaker may have a significant demand problems amid reports that inventory has been piling up in global markets.

The base Model 3's price was cut US$3,000 to US$43,990. The starting price for the midsize Model S was reduced by US$10,000 to US$94,990 and the midsize Model X saw an US$11,000 drop to US$109,990.

"This is what we call using the demand levers," said Loren McDonald, CEO of analysis and consulting firm EVAdoption.

McDonald said potential American buyers might have put their Model Y orders on hold waiting for a firm set of rules from the U.S. Treasury Department regarding the tax incentives. The price cuts offer a strong stimulus to buy now since the US$55,000 cap is no longer an issue.

Tesla offered temporary US$7,500 price cuts in December in the United States, but only for inventory models. The new price reductions also apply to new orders.

Over the past two years, Tesla had steadily increased prices for its lineup due to strong demand for EVs and limited supply by competitors struggling with supply-chain shortages. Wait times for the base Model Y stretched to six months or more even with the hefty increases. But times have changed.

GLOBAL PRICE CUTS

Earlier this month, Tesla cut prices in China by six per cent to 13.5 per cent. After the reductions, there were signs of increasing demand as wait times for new Teslas increased by a few weeks.

Tesla has also reduced prices in other markets. Reuters reported that the EV maker has cut prices in South Korea, Japan, Australia and Singapore. Tesla also cut prices in the UK, France, Italy, Austria, and Switzerland.

Tesla said on Friday that was able to provide its cars at a more accessible price in Germany because cost inflation was normalizing.

"At the end of a turbulent year with interruptions to the supply chain, we have achieved a partial normalization of cost inflation, which gives us the confidence to pass this relief onto our customers," a spokesperson for Tesla Germany said in a statement.

Last year, the United States and China combined had accounted for about 75 per cent of Tesla sales, although the automaker has been growing sales in Europe, where its factory near Berlin has been ramping up production.

In China, where Tesla cut prices last week by six per cent to nearly 14 per cent, owners protested at delivery centres across the country, pressing Tesla for compensation.

Analysts had said the China price cuts would boost demand and deepen the pressure for its rivals there, including BYD, to follow suit in what could become a price war in the largest single market for EVs. That pressure could be building in Europe as well.

Tesla missed Wall Street estimates for fourth-quarter deliveries.

Last month, Musk said "radical interest rate changes" had changed the industry-wide outlook and that Tesla could lower pricing to sustain volume growth, which would result in lower profit.

Reuters, Automotive News Europe and Automotive News Canada contributed to this report.