Tesla Raises Prices in the U.S. as Inflation Chips Away at its Profit Margins

author: Eric Walz   

The starting price of the Tesla Model Y SUV increased by $3,000 from $62,990 to $65,990 in the U.S.

Although Tesla is the world's most valuable automaker with a current market cap topping $680 billion, building fully electric vehicles costs more that a similar internal combustion engine powered one. Faced with rising inflation that's driving up the cost of raw materials, Tesla has raised prices of all its models in the U.S. by roughly 5%. It's the third price increase since March.

The price of the Tesla Model Y SUV increased by $3,000 from $62,990 to $65,990 on Tesla's website. The Model Y now costs 25% more than it did in Jan 2021.

The price of the Model 3 Long Range jumped $2,000 from $55,990 to $57,990. However, the base rear-wheel driver version of the Model 3 remains unchanged at $46,990. 

The Dual Motor Model S sedan now costs $5,000 more, jumping from $99,990 to $104,990.

These prices do not include Tesla's Full Self-Driving Capability, which costs an additional $12,000 on top of the purchase price. 

The latest price increases by Tesla follow two others in March. The price increases three months ago were also due to rising raw material costs.

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 over 29% since last year.

These rising raw material costs are being passed on to consumers in the form of higher prices for electric vehicles. 

Tesla rival Rivian raised the price of its R1T electric pickup and R1S SUV by $10,000 in March. The company said the move was due to semiconductor shortages and rising costs of parts due to inflation. 

In addition to the price hikes, Tesla is dealing with supply chain issues which are delaying vehicle deliveries. Delivery estimates for the Dual Motor Model S on Tesla's website are between Nov 2022 and Jan 2023. For the more popular Model Y, the estimated delivery window is Jan 2023 to April 2023. These long wait times for deliveries may prompt some EV buyers to look elsewhere.

In addition to inflation, Tesla is dealing with the rising costs of lithium used to produce its batteries.

The rising costs of Tesla vehicles may also put a dent in its future sales, as competition in the electric vehicle segment heats up with more affordable models hitting the market. 

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 new electric models globally.

The new fully-electric Kia EV6 for example, has a starting MSRP of $40,900 for the base rear-wheel-drive version, which is now $25,090 less than Tesla's Model Y crossover. 

The all-wheel-drive version of the EV6 starts at $50,900, while the high-performance GT-Line EV6 starts at $55,900, which is $14,090 less than the Model Y Performance. Kia also has an added advantage of the federal EV tax credit of $7,500, which Tesla is no longer eligible for after reaching the 200,000 vehicle cap.

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. China is the world's biggest auto market and an important one for Tesla to maintain its profitability.

NIO plans to produce its own EV batteries to increase profits, company Chairman William Li said on a call with analysts last week.

In addition, Musk has warned about a possible recession in recent weeks. He said in early June that he has a "super bad feeling" about the economy and that Tesla needed to cut 10% of its workforce.

Tesla is also dealing with a sinking stock price. Shares are down 45.5% since the start of the year, which erased over $300 billion in market cap.

On the plus side, demand for Tesla vehicles remains solid. But requesting a deposit for an electric vehicle that a customer may not receive until Spring 2023 might result in a dwindling number of Tesla pre-orders.

Eric Walz

Originally hailing from New Jersey, Eric is a automotive & technology reporter covering the high-tech industry here in Silicon Valley. He has over 15 years of automotive experience and a bachelors degree in computer science. These skills, combined with technical writing and news reporting, allows him to fully understand and identify new and innovative technologies in the auto industry and beyond. He has worked at Uber on self-driving cars and as a technical writer, helping people to understand and work with technology.