Elon Musk Delivers Good News on Inflation

Tesla CEO has promised the electric vehicle maker will lower prices as soon as inflation ebbs.

In these uncertain times when whispers of recession grow louder every day, any news suggesting that prices could fall is very good news, especially for consumers and the authorities for whom inflation has become a headache. 

After all, high inflation could cost the politicians in power at the ballot box. 

Inflation, which is at multi-year highs across the world, is showing up in the prices of almost everything: from groceries to smartphones, PCs to toothpaste, and soap to shower gel. 

Airline ticket prices have soared. Gas prices at the pump remain high, even though we are far from the peaks reached a few weeks ago.

It is in this context that Elon Musk, CEO of Tesla  (TSLA) – Get Tesla Inc. Report has just made observations that will cheer almost everyone: consumers, Tesla customers, investors and politicians.

A Relief for Tesla

In a series of tweets posted on July 28, Musk announced that the prices of the raw materials Tesla needs to make its cars are falling. It should be remembered that the prices of commodities (nickel, cobalt, palladium, lithium, etc.) have risen sharply since the invasion of Ukraine by Russia on February 24. The unprovoked war has added to the shortage of chips caused by the disruptions to supply chains generated by the covid-19 pandemic.

All this has led automakers to pass on to consumers, through successive increases in vehicle prices, rising costs.

“Inflation might be trending down,” the billionaire told his more than 102.2 million followers on Twitter. 

“More Tesla commodity prices are trending down than up fwiw,” he added in another post.

“Are prices for a tesla going to increase,” a Twitter user asked him.

“Too early to say for sure,” Musk responded.

Musk’s posts have sparked strong interest from his millions of fans, curious whether ebbing inflation means Tesla vehicle prices will drop.

“If inflation calms down, prices of Tesla will decrease, right?” asked one fan.

The base price of the Model 3, Tesla’s entry-level sedan, is currently $46,990 without options offered by the Austin, Texas-based automaker. As for the Model Y SUV, one of the best-selling electric vehicles in the world, the base price is $65,990.

After having regularly increased the prices of its vehicles in 2021, Tesla had taken a kind of break at the start of the year. But in March, the automaker started raising prices again. In April, Musk’s group carried out a new price hike on long-range vehicles.

Will Teslas’ Prices Go Down?

In June, the company made a further price increase on almost all models. The Model 3 sedan, long-range version, saw its price increase by $2,500, from $54,490 to $57,990. As for the Model Y SUV/crossover, it saw the prices of the different variants increase: The Model Y long-range went from $62,990 to $65,990, an increase of $3,000. The Model Y performance, for its part, saw its price climb by $2,000, from $67,990 to $69,990.

The price increase of the Model S luxury sedan has risen sharply. The price of the dual-motor all-wheel-drive version has risen from $99,990 to $104,990, up $5,000. The price hike was $6,000 for the Model X luxury SUV, including the dual-motor all-wheel-drive long-range. Its price rose from $114,990 to $120,990.

These various price increases have allowed Tesla to increase its profit margins. In the second quarter of 2022, the world’s leading automotive group, by market capitalization ($880.2 billion as of the time of writing), posted an adjusted EBITDA margin (margin before interest, taxes, depreciation and amortization) of 22.4%, up from 20.8% a year ago, according to its earnings’ report.

But in mid-July, Musk made a promise to lower Tesla car prices if inflation eases.

“If inflation calms down, we can lower prices for cars”, the tech tycoon committed.

He repeated this promise during the second quarter earnings’ call on July 21.

“When or if we see indications that the inflation rate is declining, then we would not need to increase our car prices”, Musk told analysts. “It’s possible that there could be a slight decrease in car prices. But this is fundamentally dependent on macroeconomic inflation. It’s not something we control.”

“If I were to guess, and I would take this with a grain of salt, I think inflation will decline towards the end of this year”, the chief executive officer also said the same day.

U.S. inflation accelerated to a fresh forty-year last month, data from the Bureau of Labor Statistics said mid-July. Consumer prices soared 9.1% in the 12 months through June.

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