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How Tesla Model 3 Is Lowering EV Prices in the US

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  • According to Cox Automotive, the average EV (electric vehicle) price in the US is down about 13% year-over-year.
  • This decline is in large part due to Tesla’s Model 3, which has a starting price of $38,990 before incentives.
  • Cox’s study also says that Tesla accounts for about 80% of EV sales in the US, with the majority made up by the Model 3.
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Tesla: A disruptor in the EV space

US electric car maker Tesla (TSLA) disrupted the whole EV space when it entered the market. Previously, most automakers were building EVs only to meet zero-emissions regulations. They wanted to keep selling gasoline cars in key markets by meeting emissions standards. General Motors (GM) and Ford (F), for example, tried their hand at EVs, but they were mostly interested in the positive publicity the endeavor generated.

It wasn’t until Tesla launched its cars that EVs became mainstream. First with the Roadster and then with the Models S and Y, Tesla showcased the potential of EVs and changed consumers’ perceptions about them. With the launch of the Model 3 in March 2016, Tesla brought EVs to the mass market. It received over 400,000 reservations for the car in less than a month.

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Tesla’s Model 3 brought down the average prices of EVs in the US

The Model 3’s disruptive power is further substantiated in a recent study by Cox Automotive, as reported by Quartz. According to the study, the average selling price of EVs in the US is coming down thanks to the Model 3. While the average price of an EV in the US last year was $64,300, this amount dropped by 13.4% to $55,600 in 2019. Most of this decline is the result of Tesla’s Model 3, which has a starting price of $38,990. The study also added that the drop in prices could have been more pronounced had legacy automakers not been focusing on luxury EVs.

The Audi e-Tron and Jaguar I-Pace, for example, are positioned against Tesla’s premium Models S and Model X, priced at $74,800 and $69,500–$85,900, respectively.

Model 3’s potential

Tesla’s Model 3 was ranked as the best electric car by YouTube’s most noted auto reviewers due to its tech, driving dynamics, and overall driving experience. According to Inside EVs, the Model 3’s US sales as of July this year were higher than the next 16 EV models combined. So far in 2019, Tesla has sold about 81,100 units of its Model 3 in the US as of July. The model even outsold luxury models such as Jaguar’s I-Pace and Audi’s e-Tron.

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On August 20, Moody’s Investor Service upgraded its outlook on Tesla from “negative” to “stable.” The rationale behind the change in Moody’s outlook for Tesla was that it “reflects its achievement of scale production of the Model 3 after struggling with significant manufacturing and assembly hurdles.”

EV adoption rates to rise with lower prices

While the EV market sales as a total automotive market sales in the US are still meager at 2%, they’re catching up fast. Tesla’s EVs and other electric vehicles are still costlier than internal combustion engine vehicles. The high initial costs, however, make up for the price differential over time due to lower fuel and maintenance costs. JPMorgan Chase expects electric and hybrid electric cars to account for 30% of all vehicle sales by 2030. Economies of scale, higher competition, and lower costs of batteries should drive high adoption rates for EVs in the future.

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According to Teslarati, Tesla bull Ron Baron said while talking to CNBC that Tesla had reduced the prices of its cars as a result of all it had learned in the space. He said, “They’re building for 70% less than it would cost for the same cars to build in the United States and 30% less than it would have cost to build a year ago.”

Tesla: The market leader in electric vehicle space in the US

Teslarati cited Cox Automotive data in reporting that Tesla vehicles currently command 80% of all EV car sales in the US. Moreover, most of Tesla’s EV sales are of the Model 3. A previous study from Cox revealed that Tesla was mainly responsible for the growth of EVs in the US. According to this study, 81% of car buyers who were open to acquiring an EV were considering Tesla as their potential purchase. Toyota trailed at a distant second place with 52%. Chevrolet, Nissan, and Honda were purchase considerations among 47%, 42%, and 39% of people considering EVs, respectively.

Tesla set to launch China-made Model 3 in China

After disrupting the US EV space, the Model 3 is set to launch in China in a big way. Tesla started selling the Model 3 in China in February. However, the launch of its Model 3 made through its Chinese Gigafactory could be a game changer for the company in China. Read Could Tesla’s China Gigafactory Be Its Secret Weapon? to learn more.

Tesla stock has slumped 10.8% this month versus the S&P 500’s (SPY) fall of 2.9%. Tesla’s decline is mainly the result of the broader market’s decline along with company-specific negative news. From crashes to solar panel fires, it’s had a lot of issues lately. In comparison, Ford and GM are down 5.6% and 9.7%, respectively, this month.

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