Tesla cuts vehicle prices by $2,000 to offset shrinking EV tax credit

Tesla knocked $2,000 off of the prices of its cars in the US on Wednesday to help offset a recent reduction of the federal electric vehicle tax credit. The automaker also announced initial delivery and production numbers for the fourth quarter of 2018, showing that the frenzied pace it carried through most of the year — led by the big Model 3 push — helped Tesla set new company records, even though it cooled toward the end.

The cheapest Model 3 (a “midrange” rear-wheel drive version announced in October) will now start at $44,000. The base Model S now costs $76,000, and the most affordable Model X now starts at $82,000. (Prices for the base Models S and X went up in November.)

Tesla’s pace of production and deliveries tapered off slightly at the end of 2018, according to the release from Wednesday. The automaker manufactured a total of 86,555 vehicles in the fourth quarter, and it delivered 90,700, both of which are record numbers for Tesla. But those numbers only represented increases of about 8 percent compared to the third quarter figures. Tesla had nearly doubled its overall production and delivery numbers from the second to the third quarter of 2018, and it saw similar growth from the first quarter to the second.

Still, Tesla made about 253,000 cars in 2018 and delivered about 245,000. That’s a far cry from the goal of making 500,000 that Musk once targeted for 2018, but it’s more than double the output of 2017 when the company made around 101,00 cars and delivered about 102,000. That’s not bad for a company that had such a roller coaster of a year.

The EV tax credit was started during the Obama administration in order to encourage customers to buy plug-in electric or hybrid vehicles and also incentivize automakers to invest in the technology. The credit was never meant to be permanent, though, and so it was designed to slowly phase out once an automaker delivered its 200,000th eligible car in the US. Tesla became the first company to pass this mark last summer, which meant that the full amount offered by the IRS would drop from $7,500 to $3,750 starting on January 1st, 2019.

Tesla and its CEO Elon Musk promoted against this coming change relentlessly throughout the end of 2018. The company first promised in October that all orders placed online by the middle of the month would have guaranteed delivery by the end of the year, thus ensuring that buyers would be eligible for the $7,500 credit. But Tesla (and Musk) continued making similar promises right up until the end of December, telling interested buyers to check online or with their local Tesla stores for last-minute availability.

That push appears to have worked to a degree. Tesla said in Wednesday’s press release that more than three-quarters of Model 3 orders in the fourth quarter of 2018 came from new customers, as opposed to people who hold reservations for the car. It might also signal that many reservation holders are still holding out for the cheaper, $35,000 “standard range” (220-mile) versions of the Model 3, which Tesla has not started making.

Until last July, Tesla required a $1,000 deposit to “reserve” a spot in line to buy the Model 3. The company has not recently released a concrete figure for how many reservation holders remain, but it implied in October that there is still a net of at least 300,000 reservation holders in North America. Tesla said at the time that it expects “most of the remaining reservations to gradually convert to orders” as the company releases more affordable versions, including the $35,000 base model that was promised when the car was debuted.

Tesla prioritized more expensive, higher-margin trims of the Model 3 in 2018 as it ramped up production because, as Musk said last year, shipping lower-cost versions would cause the company to “lose money & die.” And even with the focus on more expensive Model 3s, Musk recently told Axios that Tesla still came “within single-digit weeks” of running out of money.

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