Tesla Inc. cut the starting price of the Model 3 sedan in the U.S. weeks after a federal tax credit shrank in half, renewing concern over whether the electric-car maker can sustain sales with less support from incentives.
The Model 3 now starts at $38,990, according to Tesla’s website. Arndt Ellinghorst, an analyst at Evercore ISI, wrote in a report Tuesday that the halving of the U.S. tax credit to $1,875 at the beginning of July is causing the company to reduce prices to support demand.
“The key question remains — will Tesla be able to sustain itself given steadily declining ASPs and worsening mix?” Ellinghorst wrote, referring to the average selling prices of the company’s vehicles dropping as the Model 3 becomes a greater share of deliveries.
Tesla shares fell as much as 2.1% to $248.01 before the start of regular trading Tuesday. The stock was down 24% this year through Monday’s close.
While the starting price of the Model 3 has dropped, Tesla’s moves to simplify its lineup include dropping a standard-range version of its larger and more expensive Model S sedan. The cheapest version available is now $79,990, according to the company’s website.
Tesla also cut prices on all vehicles shipped to China, with the Model 3 dropping to 355,900 yuan ($51,764) from 377,000 yuan, according to a Tesla representative. Prices of the Model S and Model X were cut about 4% to 776,900 yuan and 790,900 yuan, respectively.
The changes won’t affect prices of Model 3s that will be produced near Shanghai, according to the representative. Tesla is expecting to begin output at a factory there later this year.
Tesla is adjusting prices “in order to continue to improve affordability for customers,” the Chinese unit said in a statement. “We are standardizing our global vehicle lineup and streamlining the number of trim packages offered for Model S, Model X and Model 3.”