Tesla Hikes Prices for the Second Time in Less Than a Week Due to Inflation and the Rising Costs of Raw Materials

author: FutureCar Staff    

Tesla’s Long Range Model Y now costs $62,990 before incentives, which is a 20% increase from January 2021.

The elusive $35,000 or even $25,000 electric car that Tesla Chief Executive Elon Musk has long promised may never be available, as new car prices tick upwards due to growing demand for new vehicles, the global semiconductor shortage and soaring inflation that has led to rising prices for just about everything.

Tesla announced a second price hike in less than a week for all of its electric models on sale in the United States and China. The company says it is due to the rising costs of raw materials and logistics, which are being made worse by Russia's invasion of Ukraine. 

Musk said that Tesla is facing significant inflationary pressure due to the higher costs of raw materials.

Tesla raised prices on Tuesday for all its U.S. models by 5%-10%. The price increases are already reflected on Tesla's website. In China, which is the world's biggest auto market, Tesla raised prices of some China-made Model 3 and Model Y products by around 5%.

In the U.S., Tesla's Long Range Model Y now costs $62,990 before incentives, which reflects a 20% increase from January 2021. The Rear Wheel Drive Model 3 now costs $46,990, which is roughly a 10% price increase. The Dual Motor All-Wheel Drive Model 3 starts at $54,490.

These prices are without Tesla's Full Self Driving Package, which costs an additional $12,000.

Prices of metals like aluminum used for vehicle bodies have jumped by 56% from a year ago. Other raw materials, including nickel and lithium used for electric vehicle batteries have also increased dramatically. The price of nickel has jumped by over 29% since last year.

These rising prices are being passed on to consumers in the form of higher prices for vehicles. Although Tesla is the world's most valuable automaker with a market cap of $827 billion, the company is under heavy pressure to maintain its vehicle margins.

The rising costs of Tesla vehicles may also put a dent in its sales, as competition in the electric vehicle segment  heats up. As an electric-only automaker, Tesla operated virtually unchallenged in the auto industry for years. But that's not the case anymore as the world's automakers introduce dozens of new electric models.

The new fully-electric Kia EV6 for example, starts at $40,900 for the base rear-wheel-drive version, which is $22,000 less than Tesla's Model Y crossover. The all-wheel-driving EV6 starts at $50,900, while the high-performance GT-Line EV6 starts at $55,900, which is $12,090 less than the Model Y Performance that its comparable to.

Tesla is also facing new competition in China from EV startups Xpeng Inc. and NIO Inc., both of which offer lower priced vehicles than the Tesla Model 3 and Model Y in China.

Tesla's stock price is down 33.3% since the start of the new year. The company's shares were trading at $803.13 on Tuesday, which is $400 less than it was on Jan 3, 2022. Tesla's falling stock price erased roughly $175 billion in market value this year alone.

Now with the higher costs of Tesla vehicles, EV buyers may opt to purchase more affordable battery-powered models from other automakers.

Despite growing competition and higher prices, demand for Tesla's Model Y is still strong. The question is will it remain that way as competition grows in the EV segment.

FutureCar Staff