In response to these challenges, Tesla has announced that it will be cutting prices on its electric vehicles. It started off first in China at the end of last year and in 2023 the price cuts followed in the U.S. and Europe. The move aimed at boosting sales by driving volume growth. With the drop in prices ranging from 6% to 20% in the U.S., effectively allows more Tesla models to be eligible for newly revised tax incentives of $7,500 that kicked in January 1^st under the Inflation Reduction Act.

However, the price cuts can be seen also as a sign of strength – a display of pricing power and cost superiority. Tesla brought battery manufacturing and other parts of its supply chain in-house, and standardized vehicle designs to improve economies of scale. Hence, it comes as no surprise that they are achieving economies of scale here by being the most effective on the “net profit per vehicle” metric.