Why did Tesla Make Model 3 Cheaper?

Tesla made Model 3 a bit more easier to afford by reducing the price on its dual-motor option, as well as making some features of Model 3 Performance version optional.

But why cut the price now; When Tesla is supposedly struggling to survive?

The answer lies in the juggling act Tesla is performing by balancing production, pricing, product mix, demand and delivery.

Customers pay $1000 at the time of booking and then they need to pay $2,500 when they configure their Model 3. Suffice to say that if you configure the model and pay down $2,500, the odds of you backing out of the deal is very low.

At the end of March 2018, Tesla said that Model 3 net reservations exceeded 450,000. A major portion of that reservation must have come from United States and it could very well be more than 200k.

  • How many reservation holders will be ready to pay more than $75K for Model 3?

  • How many customers will be ready to pay $65k? $55k? $35K?

As Model 3 price keeps moving lower, the size of the customer base within its reservation pool will keep increasing.

From a price perspective, Tesla should exhaust all customers around the $30,000 price point. Why?

Because most of the Model 3 customers knew that’s the least they need to pay for their car by the time they made their deposit.

By un-bundling the options on Model 3 Performance version, Tesla has brought down the starting price from $78K to $64K and in the process Tesla expanded Model 3 Performance version’s customer base within its reservation pool. The same goes with the $1000 price cut for the dual motor option.

By slashing the price, Tesla is enticing its reservation holders to configure their cars.

What this also means is – Tesla is assuming that it has the production capacity to meet the incremental orders caused by the price cut.

Can I just make it simple and say, the production capacity must have increased by a good margin for Tesla to make this move.