Section 1.1: Price Adjustments and Vehicle Options

At present, the Model 3 starts at $40,000, while a base Model Y is available for $47,000. The Model S begins at $87,500, and the Model X is priced at $97,500. The price tags for the Model S and X include three years of complimentary Supercharging, compensating for the absence of tax credits.

Concerns arose regarding the revised EV tax credits, as many Tesla models seemed ineligible due to their elevated prices. Had this been the case, competitors like Volkswagen and Chevrolet would have enjoyed a significant advantage. However, thanks to recent price reductions, all Model 3s and Ys now qualify for the full $7,500 tax credit, with the exception of the rear-wheel drive Model 3, which qualifies for $3,750.

When factoring in these credits, the Model 3 can effectively start at around $36,200, while the Model Y is priced as low as $39,500. Although not all buyers will qualify for the full tax credit, the Model Y’s larger credit eligibility makes it a compelling option.

Not only does the Model Y offer the practicality of an SUV, but it also comes equipped with all-wheel drive (AWD) and accelerates to 60 mph a full 0.8 seconds faster than the rear-wheel drive Model 3. Additionally, the Model Y boasts a 7-mile range advantage. It is the sole Tesla priced under $50,000 that delivers over 300 miles of range, given that the Long-Range Model 3 is currently unavailable for order.

The Model Y's advantages extend beyond pricing. For example, the Mustang Mach-E starts at $46,000 but offers only 247 miles of range in its base configuration, lacks AWD, and can only charge at 110 kW compared to the Model Y’s maximum of 210 kW.

These advantages contributed to the Model Y becoming the fourth best-selling passenger vehicle of 2022, with an impressive 759,000 units sold—an 88% increase from the previous year, despite its price often exceeding $60,000.

The Model 3 also remained a strong contender, with 596,000 units sold in the same period, despite its price being approximately $10,000 higher than the previous year.

Some speculate that Tesla's earlier price increases were intended to manage the demand for its popular models and prevent excessive wait times. Now that supply issues have eased, with wait times for new Model 3s and Ys dropping below a month, the company has adjusted prices to more competitive levels.

This suggests that the recent price cuts are not a sign of declining demand for Tesla vehicles. For current owners who purchased during the price inflation, the recent depreciation may be disappointing, but many likely anticipated a return to previous price levels.

However, this raises an important question: what strategies does Tesla have in place to sustain demand for the Model 3 and Y as sales inevitably begin to decline?

Section 1.2: Revamping the Model 3

Given the Model 3's presence in the market since 2017, along with fierce competition and the Model Y's similar pricing with full tax credits, the Model 3 may not seem as appealing. Fortunately, Tesla is planning a redesign known as “Project Highland.”

This initiative involves a comprehensive facelift that includes an updated interior and new Full Self-Driving (FSD) hardware. By streamlining manufacturing—like integrating fog lights into headlights—Tesla aims to reduce the total number of components significantly.

Combined with enhanced aerodynamics and potentially more efficient powertrains, the redesigned Model 3 could offer a fresh appearance, additional features, and next-generation performance and range—all while maintaining a similar price point.

With these updates, it’s likely that the Model 3 could reclaim its status as Tesla's best-selling vehicle, solidifying the brand's appeal in the EV market.