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Tesla price increases may just be the beginning for electric vehicle industry: Analyst

Pras Subramanian
·Senior Reporter
·3-min read

Unlike traditional automakers, electric-vehicle (EV) maker Tesla (TSLA) can dynamically raise or lower prices at will — and it has just done that, again.

For the second time in a week, Tesla is raising prices across the board for its U.S. product range encompassing the Model 3, Model Y, Model S, and Model X. Here are a few notable hikes:

  • Model 3 Rear-Wheel-Drive, Tesla’s cheapest vehicle, went up $2,000 to nearly $47,000

  • Model 3 All-Wheel Drive jumped $2,500 to $54,500

  • The base version of the Model Y crossover rose $2,000 to nearly $63,000

  • All Model S variants climb ed $5,000, with the cheapest version starting at $99,000

  • The Model X SUV jumped a whopping $10,000 to nearly $115,000

Tesla also took the opportunity to raise prices in China around 5% across the board for the made-in-China models on sale on the mainland.

In addition to price hikes, delivery timelines have slowed. Last week, the standard Model Y's delivery date got pushed back a month from its initial August date. As of today, that same Model Y’s delivery date is September. If buyers want to add options like smaller wheels, that delivery date could blow out to December.

Affect on demand

The big question for Tesla shareholders and analysts: Will these price hikes eventually destroy demand, as it could for newer EV-makers like Rivian? For Tesla, veteran industry analyst Sam Fiorani, VP of Global Vehicle Forecasting at AutoForecast Solutions, doesn’t think it will.

“Startups will all need to raise their prices, especially as their profits are small to non-existent at the beginning, and this has already been a PR nightmare for Rivian (RIVN),” Fiorani tells Yahoo Finance. “With the popularity of Tesla and its place as market leader, demand isn’t likely to be hurt by the new pricing.”

Tesla’s long standing in the EV industry and early mover status has cemented the company’s brand in consumers' minds, even though the company doesn’t spend much on traditional marketing. CEO Elon Musk’s tweets and various media forays do enough to get the company’s message into the cultural mainstream. A tiff with the Biden administration over the company’s role in pushing EV adoption in the U.S. has only amplified Tesla’s brand awareness.

Photo by: STRF/STAR MAX/IPx 2021 4/7/21 Tesla delays deliveries of new Model S and Model X electric vehicles. Here, a Tesla is seen in the Greenwich Village area of Manhattan.
Photo by: STRF/STAR MAX/IPx 2021 4/7/21 Tesla delays deliveries of new Model S and Model X electric vehicles. Here, a Tesla is seen in the Greenwich Village area of Manhattan.

And rising gas prices may be pushing EV adoption, with blog Electrek reporting that sources are saying Tesla’s sales have been booming in certain regions of the country in the first quarter.

Rising materials costs and likely unmet demand is seemingly a two-pronged price-hike machine. Tesla management would be foolish not to raise prices in this environment, Fiorani says, especially with its fluid pricing model.

“Low inventory around the industry has curtailed the use of incentives and price negotiations, neither one of which is used by Tesla. Where the traditional brands have, in effect, raised their prices by eliminating these tactics, why shouldn’t Tesla also cash in on higher industry transaction prices?” he asked.

Investors will be watching in late April when Tesla reports first-quarter earnings to see whether rising prices have an effect on sales. Tesla shares are pulling higher today in midday trade.

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Pras Subramanian is the senior autos reporter for Yahoo Finance. You can follow him on Twitter and on Instagram.

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