When Fisker, Lucid Motors, and Ford Motor (F) are entering the electric vehicle market at a sub-$40,000 price point, Tesla’s (TSLA) price hike is gutsy. The EV giant will raise the price of its premium Model S and Model X by $5,000 in the U.S.
How is that possible?
Tesla wants to differentiate the mainstream EVs from the Model S/X. Those who may afford an EV at $80,000 will have no problem paying $84,990 for the Model S. The Model X will cost $94,990.
In China, Tesla responded to the increasing competition from XPeng and Nio by introducing a cheaper Model Y. This will spur demand but Tesla must not take short-cuts. The Chinese government will not tolerate low quality and glitches. It already banned the Tesla EV from the highway.
Price Restored
The $5,000 price increase reverses the equivalent price cut in May 2020. Tesla spurred demand in response to the pandemic pressures. Even after the price increase, Tesla Model S prices are relatively flat to down from 2018. For example, the company added long-range and autopilot but the price barely changed.
Lower input costs are helping Tesla pass the lower overall costs to customers. Battery costs are falling. The global expansion of gigafactories is cutting costs, too.
After the price hike, look for operating profits to increase, helping the stock.
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