Elon Musk And Tesla Make an Expected But Unwanted Change

The maker of electric vehicles has just raised prices, less than a month after they were cut.

The big New Year’s change didn’t really last. 

Less than a month after drastically lowering the prices of its vehicles, including the very popular Model 3 and Model Y, Tesla has just changed its policy. 

The electric vehicle maker has started to raise prices again. This change particularly affects the Model Y SUV/crossover, one of its bestsellers. The prices of this SUV have increased between 2% and 3% since Feb. 4, depending on the version chosen by the consumer, according to the automotive group’s website.

The base price of the Model Y Long Range is now $54,990, up from $53,490 a few hours ago. The increase is therefore 2.8% increase. The base price of Model Y performance increased by 1.75% to $57,990 against $56,990 on Feb. 3.

The company of the whimsical and charismatic Elon Musk does not explain the reasons which led it to change its pricing policy. When Tesla  (TSLA) – Get Free Report drastically lowered the prices of all its vehicles by 7% to 20% on Jan. 12, the electric vehicle maker indicated that this decision would be in place until the end of March. 

What Happened?

The move was primarily intended to allow consumers purchasing all variants of the Model Y and Model 3 sedan to benefit from the new $7,500 federal tax credit in place since Jan. 1. 

Musk and Tesla were reacting to bad news delivered on Dec. 30 by the Treasury Department. The Internal Revenue Service (IRS), which depends on the Treasury, had decided to adopt a definition of the SUV, which excluded the Model Y from the vehicles eligible for the tax credit. Tesla and Musk, like other automakers, protested the IRS restriction.

To qualify for the federal tax credit, cars, sedans and wagons needed to have a retail price of no more than $55,000. SUVs, on the other hand, with a retail price of up to $80,000 were entitled to the tax credit of $7,500.

Since the Model Y was not an SUV, according to the IRS, consumers purchasing certain variants of this vehicle could not benefit from the federal tax credit of $7,500 because the base price was above $55,000 imposed on sedans.

But on Feb. 3, the Treasury and the IRS reversed course and now recognize the common classification of an SUV, which now makes all Model Ys eligible for the federal tax credit.

“Treasury is updating the vehicle classification standard to use the consumer-facing EPA Fuel Economy Labeling standard,” it announced. The change “will allow crossover vehicles that share similar features to be treated consistently. It will also align vehicle classifications under the clean vehicle credit with the classification displayed on the vehicle label and on the consumer-facing website FuelEconomy.gov.”

Therefore, customers who have purchased and placed in service vehicles since Jan. 1, that qualify under the EPA classification can claim the tax credit, the government added.

High Demand

Consequently, Musk and Tesla seem to feel that the new deal no longer justifies the big Jan. 12 price cut. This decision allowed Tesla to register record orders, the billionaire said on Jan. 25.

“We currently are seeing orders at almost twice the rate of production. So, I mean that — it’s hard to say whether that will continue twice the rate of production, but the orders are high,” Musk told analysts on Jan. 25.

At the time, the Techno King, as Musk is known at Tesla, said that Tesla has started raising the Model Y price again. “So we think demand will be good despite probably a contraction in the automotive market as a whole.”

The strong demand generated by the fall in prices in January had prompted the automaker based in Austin, Texas, to extend delivery times.

Tesla, on the other hand, lowered the price of a version of the entry-level Model 3 sedan. The base price of the Model 3 rear-wheel drive is now $43,490, down 1.1% compared to the $43,990 posted Feb. 3 according to Tesla website.

The Model Y and Model 3 accounted for 95% of Tesla’s deliveries last year. Deliveries are the best barometer to gauge sales of Tesla vehicles.

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