Why did Tesla's price cut completely rock the entire auto industry?

Tesla's recent line-up of price cuts has had a significant impact on the auto industry. The company's impressive margins allowed it to cut prices significantly and unexpectedly. Starting price Tesla Y Performance for example, it dropped from $65,990 to $52,990 and now qualifies for 7,500 US federal tax credits for electric vehicles. This move not only shook up the competition, but also sparked a surge in interest in electric vehicles in general. At the same time, it shook the used vehicle market tremendously.

Demand for Tesla vehicles is expected to be good and as expected in 2022, with long queues for delivery. However, Tesla failed to meet production goals and volumes and at the same time planned 50% growth from 2021 to 2022. This is also why Elon Musk decided to make one of those famous moves that make the stock market indexes shake. Tesla has thus announced a significant price reduction for all its cars in the US and other countries around the world. The result is profits, but at the same time a jump in sales and the growth of their shares.

Other automakers, especially those that don't have many EVs, are struggling to keep up with the competition. Bank of America analyst John Murphy explains: "Manufacturers are not yet able to produce electric vehicles with the high margins that Tesla can, so they may have to cut their prices sharply to encourage further sales." A GM spokesperson recently stated that while the company is closely monitoring Tesla's price changes, it has no impact on the manufacturer at this time.

According to recent reports, Tesla sales will account for about 65 percent of all electric vehicle sales in the U.S. in 2022, according to research by Motor Intelligence. This is at a time when prices for new Tesla vehicles were historically high and wait times were typically long. Meanwhile, Ford's electric vehicle sales were just under 8 percent, and GM's just 3.5 percent. The rest are represented by European and Korean manufacturers.

The price reduction also affects the resale value of Tesla vehicles. Not too long ago, some people were paying more for used Tesla vehicles than new versions because demand was so high. When the company cut prices, used versions were still listed online costing much more than new EVs, but that's changing fast. Used Tesla prices are plummeting, used car dealers are losing money, and other used electric vehicle prices are starting to follow suit. Snowball effect.

As more and more people become aware of Tesla's price cuts and try to catch the action. This should also trigger interest in electric vehicles, including from other manufacturers. Edmunds Media said that the number of people looking for electric cars has increased following Tesla's recent price cuts. The Model Y was the second most searched vehicle on the Edmunds website, and was ranked 70th just before the price cut.

It will be interesting to see how competitors react, as well as how long Tesla will continue to offer its vehicles at discounted prices. If competitors lower their prices, that may encourage Tesla to keep prices at that level. Tesla has another trump card up its sleeve. Most of its cars can remotely activate all autonomous driving functions. With recent discounts, this seems to be Tesla's biggest asset. Elon Musk can still trigger the "update" button when competitors are approaching. And in this, Tesla is better than everyone else.