Tesla has just lowered the price of its Model 3 and Model Y. The Tesla Model 3 has achieved the feat of being cheaper than the electric Renault Mégane E-Tech. While the Tesla Model Y costs the same as the new Renault Espace. We explain to you how this is possible, and what is Tesla’s secret recipe for producing such high-performance electric cars at rock bottom prices.
The prices excluding bonuses of the Tesla Model 3 and Tesla Model Y have never been so low in France. The American manufacturer has just lowered the prices of all its electric cars in France. Thus, the Tesla Model 3 starts at 41,990 euros (36,990 euros with the ecological bonus) against 44,990 euros for the Model Y (39,990 euros with the bonus). A few months ago, you had to count at least 50,000 euros to be able to get one of these two electric cars.
Can you still buy another new car than a Tesla?
Opposite, the competition is struggling to respond to these ultra-aggressive prices. Take the example of the Renault Mégane E-Tech. Since the removal of the EV40 version (the “small” battery), the range starts at 42,000 euros with the EV60 (the “large” battery) and its 454 km of autonomy on the European WLTP certification cycle.
Compare with the Tesla Model 3 Propulsion and its 510 km of autonomy for 10 euros less. Of course, each car has its advantages and disadvantages as can be seen in our comparative file. But this example between the Mégane and the Model 3 proves that it is difficult to choose the first with these new prices.
And even on the side of thermal cars, the offer is starting to be less and less competitive with Tesla’s prices. Electric cars are deemed to be more expensive to purchase than their thermal counterparts. But the trend is reversed if we take into account the costs of use (maintenance, energy and insurance), thanks the low cost per kilometer of electric cars. Without forgetting that electric cars benefit from the very interesting ecological bonus, from 5,000 to 7,000 euros depending on the household.
So when Renault recently announced that its new Espace Full Hybrid starts from 44,500 euros and that he is not entitled to the bonus, difficult not to make the comparison with the Tesla Model Y, available for 4,510 euros less thanks to the bonus. So yes, the new French car offers seven seats (the Model Y too… only in the United States for the moment) and 1,100 km of autonomy against half less for the American. But the American electric car costs much less, to buy… and to use.
In fact, if you read in detail our comparative files between competing cars and the new prices of the Tesla Model 3 and those of the Tesla Model Y, you will quickly understand that Tesla seeks to stifle, even kill the competition. Or rather, officially, allow as many people as possible to buy an electric car. Which is commendable.
How does Tesla sell its cars at this unbeatable price?
But how can Tesla lower the price of its electric cars so much, while making a lot of money ? It’s quite simple for the American manufacturer, but a major challenge for all its competitors.
It should be remembered that Tesla has always only sold electric cars, since the first roadster in 2008. All the money spent on research and development is for one and only purpose: produce the most efficient and affordable electric cars possible. This is the whole point of parts one and two of Elon Musk’s Master Plan, which made it possible to go from the expensive Tesla Model S to the more affordable Tesla Model 3.
During the Investor Day organized in March 2023, the billionaire and his teams spent a lot of time explaining the optimizations and improvements that have recently been made in the production of the brand’s electric cars. And it is precisely all these improvements that pave the way for the future Tesla Model 2, the famous $25,000 electric car promised by Elon Musk as the media points out Numerama.
Some rumors even announce that the future restyled Tesla Model 3 and Model Y (Highland and Juniper projects) would be cheaper, thanks to the optimization of production, and the use of the famous Giga Press.
At the same time, Tesla’s competitors have spent a lot of time (and a lot of money) developing combustion engines and hybrid powertrains. Admittedly, Renault has been marketing the Zoé since 2012. But the electric car has not been the manufacturer’s priority at all over the past decade, unlike Tesla. We had to wait for the arrival of the Mégane E-Tech to really have an interesting novelty technically and up to date.
And even the world’s number 2 electric car, the Chinese giant BYD, which is on the heels of Tesla, cannot offer such low prices. The reason is similar: BYD has been massively producing thermal cars in recent years. It stopped in early 2022, to focus half on plug-in hybrid cars (PHEV) and the other half on 100% electric cars. In other words, BYD is not totally focused on the electric car despite being Tesla’s biggest competitor.
Other ways to reduce Tesla costs
We therefore understand better how Tesla managed to reduce the production costs of its electric cars so much. And that’s just the beginning. Indeed, the battery represents a huge part of the price of an electric car. Around 40% for a Renault Mégane E-Tech for example. And precisely, Tesla also wants to drastically reduce their costs, by internalizing battery production. The famous revolutionary 4680 batteries. These are a priori they which made it possible to produce the new Tesla Model Y offered only in the United States for the moment.
And precisely, the Inflation Reduction Act adopted by Joe Biden in the United States makes it possible tofurther lower the production costs of electric cars produced on American soil. The various subsidies to manufacturers make it possible to cover around a third of the production cost of each battery.
But it is not for this reason that the price of Teslas suddenly fell in Europe this morning: most of the Teslas that we come across in Europe come from the Berlin or Shanghai factories. The batteries of these models are produced in Asia, without these famous American aids. We then understand better why Tesla wanted to repatriate the production of batteries to the United States.
Two questions therefore remain unanswered: how far will Tesla go in this price war? Will the company succeed in further lowering the price of its electric cars? And the second question is how competitors will manage to meet these aggressive prices, without jeopardizing their finances.
Can the price of Tesla drop further?
For the first question, it is impossible to answer with certainty. We expected prices to rise slightly, due to inflation for example. But Tesla proved us the opposite. Elon Musk had promised that prices would fall again when inflation was lower, and the billionaire keeps his word.
In addition, Tesla is not to be pitied financially speaking. It is the general car manufacturer that announces the largest margin on its cars. In other words, Tesla makes huge money on every car sold. At the end of 2022, the American company earned 10 times more money on each car sold in China than its competitor Volkswagen. And twice as much as the luxurious Mercedes as noted by the Chinese media IT Home.
We will now have to wait until April 19, the date of the presentation of Tesla’s financial results for the period of the first quarter of 2023, to find out if the January price cuts have not affected the margin too much. But given the new price drop in mid-April, it seems that Tesla still had some leeway before panicking investors too much.
What can competitors do?
Now, how will the competitors react? Many manufacturers have made efforts to try to follow the price war started by Tesla. But none have managed to come up with such massive price cuts. Remember that the Model 3 saw its price plummet by around 10,000 euros in just a few months, without taking the bonus into account.
Opposite, in France, Volvo has changed the range of its XC40, Ford has lowered the price of its Mustang Mach-E. In China, many local automakers have tried to align themselves with Tesla. Conversely, Volkswagen did not want to lower prices (the proof with the new restyled Volkswagen ID.3), just like Renault, which even removed the most affordable Mégane E-Tech.
We imagine that significant price cuts would be financially untenable for these classic car manufacturers who do not have the same margin as Elon Musk’s firm. When we know that the Tesla Model 3 and Model Y have been selling like hot cakes since the start of the year in Europe, this new drop should only amplify this situation.
We then sincerely wonder how the competitors will do so as not to sink. With a modification of the ecological bonus which would prevent cars produced in China (like the Model 3 and the Model Y Propulsion) from being entitled to it? But that would then prevent the very affordable Dacia Spring from benefiting from it, yet one of the best-selling electric cars in France in recent months. The situation seems complicated for manufacturers to succeed in mass selling electric cars other than a Tesla from 40,000 euros.
Want to join a community of enthusiasts? Our Discord welcomes you, it’s a place of mutual aid and passion around tech.