Tesla Cars Now Start At Under $40,000 To Counter Loss Of US EV Incentives

Tesla Inc. introduced new versions of its top-selling models priced at under $40,000, making its main vehicles more affordable to counteract the loss of US incentives for electric cars.

The new standard versions of the Model 3 sedan and Model Y sport utility vehicle start at $36,990 and $39,990, Tesla's website shows. Those starting prices are about 13% and 11% cheaper, respectively, than premium longer-range versions of each model.

Tesla shares fell 4.4% on Tuesday, giving up much of Monday's gain stoked by social media posts from the company. The stock has risen more than 7% this year.

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Tesla has been building anticipation for more affordable vehicles since early last year, when some investors and company insiders were alarmed by Chief Executive Officer Elon Musk's decision to de-emphasize a roughly $25,000 model. The CEO has instead prioritized efforts to develop self-driving technology and humanoid robots.

"The cars are increasingly just the cash engine for Tesla's real pivot: autonomy and robotics," said Shay Boloor, chief market strategist at Futurum Equities.

Executives said during Tesla's most recent earnings call that while the company started building a more affordable model in June, they opted to put off production until after the US phased out up to $7,500 federal tax credits. Chief Financial Officer Vaibhav Taneja cautioned that output will ramp up slower than initially anticipated.

Tesla's new models offer less battery range and are stripped of features including ambient interior lighting and a second-row screen.

While Tesla is coming off a record quarter of vehicle deliveries, its global sales have fallen around 6% year-to-date. Demand for EVs in its largest market is expected to drop off after the US eliminated incentives.

Analysts at BloombergNEF expect US sales of battery-electric and plug-in hybrid models to drop to around 332,000 vehicles in the final three months of the year, from almost 500,000 units in the third quarter.

"The stock baked in too much excitement for this as a driver of sales," Dave Mazza, chief executive officer of Roundhill Financial, said of Tesla's new Model Y. "Days like this remind investors the headwinds their core business faces, regardless of the longer-term dream premium that drives the stock."