Tesla says price drops are long-term thinking, but it’s really about demand
Tesla has just released its Q1 2023 earnings report amidst several price drops since the beginning of the year. This left investors questioning how these drops would affect margins, and Tesla has an explanation, but it’s perhaps only a partial one.
In a nod to the question on everyone’s lips, Tesla’s earnings report starts off immediately with a couple of paragraphs intended to address the effect of these price drops on its industry-high margins.
In the current macroeconomic environment, we see this year as a unique opportunity for Tesla. As many carmakers are working through challenges with the unit economics of their EV programs, we aim to leverage our position as a cost leader. We are focused on rapidly growing production, investments in autonomy and vehicle software, and remaining on track with our growth investments.
Although we implemented price reductions on many vehicle models across regions in the first quarter, our operating margins reduced at a manageable rate. We expect ongoing cost reduction of our vehicles, including improved production efficiency at our newest factories and lower logistics costs, and remain focused on operating leverage as we scale.
Tesla is pointing out that since its EV volume is so drastically higher than every other automaker’s, it can build cars at a lower cost than the competition.
And indeed, after yesterday’s price drops and other even larger price drops earlier this year, Tesla has gone from being near the top of the EV price range to near the bottom. Last year, Tesla repeatedly hiked prices while the industry faced supply challenges and EV demand well exceeded supply.
After tax credits, the base Model Y is now under $40k, while many electric SUVs have higher starting prices. And the base Model 3 is now available for $40k before credits are taken into account, though it now only qualifies for $3,750 due to the IRS’ new battery guidelines.
Tesla points out that these cuts reduced its margins but says that this margin reduction happened at a “manageable rate.” In Q1 last year, Tesla’s operating margin was 19.2%, and this year it’s 11.4%, a drop of 779 basis points.
This is a big chunk, cutting operating margins almost in half – and note that there have been further price cuts, both in the US and elsewhere, since the end of the quarter. So we could expect average selling prices to go down further in next quarter’s earnings and perhaps another cut to margins.
That said, Tesla is still planning to grow production at a CAGR of 50%, guiding for 1.8 million deliveries next year (about 31% growth from last year’s 1.37 million production). Tesla says it would rather focus on high volume and lower margins.
And it should be noted that higher volume also displaces more gas vehicles, which is better for the environment and public health.
There are other reasons for these price drops. For one, costs have come down, particularly with a massive global drop in the costs of resources like lithium after last year’s massive global spike. Also, as Tesla CEO Elon Musk has pointed out, rising interest rates have made it more expensive to get a loan on a car, which means Tesla has had to lower prices to make purchases seem more attractive (this is a case study in how rising interest rates can lower inflation).
But Tesla claims these margin cuts are manageable, and not only that, the company is taking a long-term view:
Our near-term pricing strategy considers a long-term view on per vehicle profitability given the potential lifetime value of a Tesla vehicle through autonomy, supercharging, connectivity and service. We expect that our product pricing will continue to evolve, upwards or downwards, depending on a number of factors.
Here, Tesla says that despite the vast majority of its revenue coming from sales of cars – in Q1, $19.9b came from cars and only $3.3b came from energy, services, and other – it feels confident that any losses in automotive sales revenue will be made up for in the long term by these other revenue categories.
Tesla currently sells access to its FSD Beta software for an eye-watering $15,000. This is an enormous chunk of change, particularly for a car that sells for $40k new. Tesla CEO Elon Musk has claimed that FSD has enormous value, though most who have used it recognize that it’s definitely not ready for primetime yet. Perhaps this is why timelines for its rollout keep getting pushed back. (Is it next year yet?)
Tesla also mentions Supercharging as a potential revenue center. Right now, Tesla doesn’t make a lot of money on Supercharging, but that may change very soon, as the company has started opening up Superchargers to other brands. Tesla used this opportunity to establish the “North American Charging Standard” using its connector, claiming that, since its connector is on the majority of cars and DC chargers in North America, other automakers should follow Tesla’s lead and use its plug.
This also opens the company up to the availability of billions of federal dollars earmarked for charger installation but which can only be used on chargers that are open to multiple brands of car. Until recently, only Teslas could use Superchargers, but now that they’re open to other cars, Tesla can presumably angle for some of those billions.
Finally, Tesla says that service could be a profit center, a big change from Musk’s original philosophy on the topic. Here’s a video from Tesla’s 2013 shareholder meeting, timestamped to 1:36 when his answer on service begins:
Clearly, things have changed since then, and Tesla is much larger and has different goals and considerations now than before. But in the context of discussing auto dealerships, with which Tesla is still in a battle, one would think that this overarching “philosophy” would not have changed with transient business conditions.
Nevertheless, this is one way in which Tesla could conceivably offer reduced upfront prices, with the hopes that the continual business of servicing vehicles in the field would help to shore up margins. Most other automakers don’t have this option since they don’t own their dealerships, but Tesla does, which gives it the flexibility to capture this portion of revenue. It sounds like the company now explicitly intends to seek this revenue after originally promising not to.
Electrek’s Take
But there’s another reason that Tesla doesn’t mention in its report: demand.
I know; we’ve heard it before. For the last decade, other automakers, media, incumbent industry, oil companies, captured regulators, and so on have all said that there just isn’t enough EV demand. We’ve called them wrong every time, and they’ve been wrong every time.
But specifically, here, we’re talking about demand solely for Tesla, after the huge price hikes that the company engaged in over the course of 2021 and 2022 and amid questionable public behavior by the CEO.
At the time when Tesla was raising prices, EV demand was very high, and EV supply was very low. This gave Tesla, the company with the most EV supply, significant pricing power.
Now, we still have high global EV demand, with many other brands selling out vehicles while gas cars go unsold. But in the US, we have an ever-changing tax credit environment, with some new rules going into place yesterday. This means there’s a lot of shifting happening in the industry, and it’s hard to predict which models will have the most demand as only some qualify for the tax credit (however, you can bypass most restrictions by leasing).
And while Tesla is mostly on the good side of this – its cars are now much lower in price, and most of them qualify for credits – it also has a ton of supply, is continuing to ramp quickly, and may be alienating potential customers.
Anecdotally (and in data), CEO Musk’s recent behavior related to the Twitter “dumpster fire” he keeps burning his money in has affected the company’s reputation. Musk says that TSLA shareholders will benefit in the long term from all the irrelevant nonsense he’s very publicly getting himself into, but we are not convinced.
So between high prices, erratic behavior from the CEO, and availability of other EV models, customers have perhaps looked elsewhere over the last year. As a result, Tesla’s inventory started to grow in a way that the company hasn’t ever really dealt with before, and it had to start pulling demand levers. It first did this with incentives, but this year has focused instead on large price drops.
Those price drops will definitely be able to bring some customers back, but it remains to be seen if some customers were permanently turned off by the high-profile behavior of the CEO.
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EVs are great, and can unlock more transportation convenience with the ease of charging at home. But for apartment-dwellers, this can be a complicated conversation. So a nonprofit called Forth is here to help, through its Charge at Home program.
One of the main benefits of an electric vehicle is in the convenience of owning and charging the car in the place it spends most of its time. Instead of having to go out of your way to fuel it, you just park it at home, in the same place it spends at least 8 hours a day, and you leave the house every day with a full charge.
But this benefit only applies to those with a consistent parking space which they can easily install charging at. When talking about owners who live in apartment buildings, it can sometimes get more complicated.
While certain states have passed “right to charge” laws to give apartment-dwellers a solution for home charging, apartment charging is nevertheless a bit of a patchwork solution so far.
And as a result of this, EV ownership among apartment renters lags behind that of single-family homeowners. It’s clear that apartments are holding back people from buying EVs, and that’s bad – lots of people live in apartments, and the gas those cars use pollutes the air just as much as any other.
Certain areas where EVs have hit a point of critical mass (namely, the large California cities) have pretty good EV ownership among renters, but it could still be better. And residents are clamoring more and more for easy EV charging in apartment communities.
So, Forth, a nonprofit advocating for equitable access to clean transportation, set up a program called Charge at Home, which is meant to connect renters, apartment building owners or other decisionmakers with resources to help install chargers at multifamily properties.
The site lets you select your situation – a resident or a decisionmaker for a new or existing multifamily development – and then gives you access to tools for your specific situation, whether you be a resident and developer.
The site houses links to help design a multifamily project, find electricians, inform you about right to charge laws or available incentives, and provide case studies, among others.
Charge at Home also hosts roundtable webinars periodically, and includes a library of past webinars with the information you need.
There are a lot of considerations for each of these projects, so it can be helpful to have someone with experience to help you go over it all. Personally, when talking to friends about getting an EV, charging considerations are usually the thing that takes up the bulk of the conversation.
So if the toolkits are still too daunting for you, Charge at Home is offering free charging consultations for multifamily developers, owners, property managers and HOAs.
The charging consultations will last through at least April 2026 – but it wouldn’t hurt to get your requests in soon. Forth may still offer consultations afterwards, but it all depends on funding availability (the program was previously funded by the Department of Energy, which has taken a turn). Regardless, the website will remain up for people to submit questions and find information, whether or not free consultations stick around.
But at the very least, as Forth points out, whether a multifamily development is interested in having EV charging at this moment or not, any developer should think about having the infrastructure, conduit and capacity ready to go for future install of EV chargers, and should consider the needs of current residents who are likely already considering EVs today.
It’s going to be necessary to install this capacity at some point, and doing so earlier can help save money down the line, make your development more attractive to renters today, and allow more renters to make the switch to cleaner transportation which helps air quality and to reduce climate change, both of which harm everyone on the planet.
Head on over to Forth’s Charge at Home site to get access to all the above resources – and to sign up for a consultation before the end of April if you’re a multifamily developer, owner, property manager or HOA.
Update: This article has been updated to account for an extension in program availability.
Electrek’s Take
I’ve long said that the only real problem with EVs is the problem of access to consistent charging for people who don’t have their own garage. Whether this be apartment-dwellers, street-parkers or the like, the electric car charging experience is often less-than-ideal outside of single family homes, at least in North America.
There are workarounds available, like charging at work, or using Superchargers in “third places” where you often spend time, but these still aren’t optimal. The best thing is just to charge your car wherever it spends most of its time, which is your home. When you do that, EVs outshine everything in convenience.
We’ve highlighted some projects before which showed how reasonable it can be to install charging for developments. Every project is going to have its complexities, but when you see projects like this condo complex that managed to install chargers for just $405 per parking spot, all of a sudden it becomes a no-brainer not to have EV charging.
But the fact is, there just aren’t enough apartment complexes out there which have EV charging. So if Forth’s Charge At Home program can help residents or landlords with that, it can go a long way towards solving the only real problem with EVs. Click here to check it out.
The 30% federal solar tax credit is ending this year. If you’ve ever considered going solar, now’s the time to act. To make sure you find a trusted, reliable solar installer near you that offers competitive pricing, check out EnergySage, a free service that makes it easy for you to go solar. It has hundreds of pre-vetted solar installers competing for your business, ensuring you get high-quality solutions and save 20-30% compared to going it alone. Plus, it’s free to use, and you won’t get sales calls until you select an installer and share your phone number with them.
Your personalized solar quotes are easy to compare online and you’ll get access to unbiased Energy Advisors to help you every step of the way. Get started here.
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Baltimore County, Maryland, just brought its first large-scale ground-mounted solar farm online, and it sits on what used to be the Parkton Landfill. The 213-acre site, once a symbol of waste, is now generating clean power that will cut costs, slash emissions, and turn an underused piece of land into a long-term energy asset.
Located north of Baltimore City, Baltimore County is one of Maryland’s largest and most populous counties, and its push toward renewables has major implications for the state’s climate and energy goals.
County Executive Kathy Klausmeier called the project a clear example of innovation meeting sustainability: “We are cutting costs for taxpayers and making investments that benefit our communities for decades.”
The new solar farm will provide around 11% of the Maryland county government’s annual electricity, producing roughly 8.2 million kilowatt-hours (kWh) in its first year. That’s the equivalent of avoiding greenhouse gas emissions from burning over 620,000 gallons of gasoline, powering more than 1,150 homes for a year, or driving 14 million fewer miles in gas cars, according to the EPA.
The 7 MW system includes four large solar arrays of 15,000 ground-mounted photovoltaic panels. It’s part of a growing trend in the US to repurpose capped landfills for renewable energy, turning dormant properties into productive clean energy sites.
Through a power purchase agreement with TotalEnergies, which owns and operates the system, Baltimore County will lock in reduced electricity rates for 25 years, with options to extend the contract for up to 33 years. That long-term deal protects taxpayers from future electricity price hikes while advancing local climate goals.
“Adding another large source of solar electricity to power our County’s facilities reflects our community’s values of making smart investments that take care of the health of our community and environment,” said Greg Strella, the county’s chief sustainability officer.
TotalEnergies Managing Director Eric Potts called the project a “powerful example of transforming underutilized assets into productive resources,” pointing to the dual benefits of cutting emissions and saving money.
Baltimore County’s next landfill solar project, at Hernwood, is expected to come online by 2028. Once that system is up and running, renewables will supply about 55% of the county government’s electricity use.
Read more: The Trump administration just killed the US’s largest solar project
The 30% federal solar tax credit is ending this year. If you’ve ever considered going solar, now’s the time to act. To make sure you find a trusted, reliable solar installer near you that offers competitive pricing, check out EnergySage, a free service that makes it easy for you to go solar. It has hundreds of pre-vetted solar installers competing for your business, ensuring you get high-quality solutions and save 20-30% compared to going it alone. Plus, it’s free to use, and you won’t get sales calls until you select an installer and share your phone number with them.
Your personalized solar quotes are easy to compare online and you’ll get access to unbiased Energy Advisors to help you every step of the way. Get started here.
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![The Hyundai IONIQ 3 looks just as wild as the concept [Video]](https://i0.wp.com/electrek.co/wp-content/uploads/sites/3/2025/09/Hyundai-IONIQ-3-EV-concept.jpeg?resize=1200,628&quality=82&strip=all&ssl=1)
The IONIQ 3 was spotted in public rocking a wild new look, just like the Concept Three Hyundai revealed last month.
The Hyundai IONIQ 3 draws looks from the Concept Three
We got our first look at the IONIQ 3 just over a month ago after Hyundai revealed the Concept Three at the Munich Motor Show.
The concept will arrive as the IONIQ 3 when it launches next year. Production is set to begin in early 2026 at Hyundai’s manufacturing plant in Turkey with the first customer deliveries shortly after.
Hyundai’s Concept Three is a preview of the new EV, set to arrive as a little sibling to the IONIQ 5. Like the concept, the IONIQ 3 is bringing a radical new look to the IONIQ series, which Hyundai said will set the tone for its next wave of vehicles.
The new design theme, dubbed “Art of Steel,” is inspired by advanced steel technology. It features an Aero Hatch profile that Hyundai calls “a new typology that reimagines the compact EV silhouette.”
The added lemon-tinted glass that wraps around the vehicle and wheels to match only adds to the electric hatch’s bold new look.
Hyundai kept a few design elements found on other IONIQ models, including its signature Parametric Pixel lights.
With its official debut coming up, the IONIQ 3 was spotted driving in Korea with what appears to be a nearly identical design to the concept.
The video from HealerTV offers a closer look at Hyundai’s new EV from nearly all angles. Although it’s still covered, you can see the front headlights are about the same. The only noticeable difference is that the turn signal lights are now above the headlight.
As the reporter points out, if you look at the headlights, tail lights, and radiator grille, it appears just like the concept.
Like up front, the turn signal is above the rear taillight. It also features a brake assist light similar to the Nexo, Hyundai’s fuel cell electric vehicle (FCEV).
Measuring 4,287 mm in length, 1,940 mm in width, and 1,428 mm in height, with a wheelbase of 2,722 mm, the Concept Three is about the size of the Volkswagen ID.3 and Kia EV3.
It will sit between the Inster EV and Kona Electric in Hyundai’s European lineup. Hyundai has yet to release prices, range, and other specs, but like the Kia EV3, it’s expected to be available with 58.3 kWh and 81.4 kWh battery packs, offering a WLTP range of around 365 miles.
Since the Kona Electric starts at £35,000 ($47,000), the IONIQ 3 will likely be priced closer to £25,000 ($33,700). For those in the US, the IONIQ is not expected to make the trip overseas.
However, Hyundai is still offering one of the most affordable EVs in the US with the 2026 IONIQ 5 starting at under $35,000.
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