Outlook For Tesla Budget Buyers Has Changed Radically, & Predicted To Change Even More!

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In this article, I try to mostly ignore the Elon Twitter drama and the TSLA stock drama and focus on how much has changed for Tesla buyers interested in the Model 3 or Model Y, their two lowest price models right now.

I’ve been a fan of the Model 3 and Model Y and my family presently owns 2 Model Y vehicles and 1 Model 3. I like a lot of things about Tesla, but I have long argued that the cost of ownership of its vehicles is far lower than that of the BMW, Mercedes, and Audi cars that have similar prices.  I’ve argued for 4 years that if you include fuel savings, maintenance and repair savings, and most recently depreciation savings (due to long life and over-the-air updates), driving a Model 3 could be as affordable as driving a Honda Accord or Toyota Camry. The Model Y can also be affordable, but its price has skyrocketed over the last 18 months. (Note: Aldrich Bautista (@AldrichBautista) maintains a Tesla Car Price History Tracker.)

Image Credit: Aldrich Bautista @AldrichBautista

The cheapest Model Y available in the US went from under $40,000 in February 2021 (for the Standard Range RWD) to $65,990 (for a Long Range AWD) in June 2022, a $26,000 or 65% increase in only 16 months! The apples to apples comparison is $49,990 to $65,990, a $16,000 or 32% increase! The stated reason for these price increases was to discourage buying until production in Fremont, Texas, Shanghai, and Berlin could ramp up and satisfy demand.

The Model Y got to be so popular that the waiting list was frequently 6 months or more, and Tesla honors the price you get when you pay the $250 order fee. So, Tesla was worried that if people reserved cars two or three years in advance and inflation caused the price of labor and materials to go up, they could get in trouble and have to sell the cars at break-even or a loss. I reserved a Model Y three years ago, and this spring Tesla told me I had to either buy the car or they would cancel my reservation. I had been waiting until my daughter was ready for the car. So, my daughter got a Model Y a little before she was ready, but since the price was over $10,000 below the market price, it didn’t make sense to let Tesla cancel the order.

Tesla also doesn’t think it makes for a good customer experience to have too long of a wait list. I tend to agree that the price system is a good way to match supply and demand. Then the people that can best use the cars get them first.

What Changed?

Over the last few months, a few things have changed.

  1. The economy has slowed down. Some people say we are in a recession, other people don’t think it is a recession. Others (like Elon) think a recession is coming. Whatever you think, interest rates on car loans have gone up a lot and that has caused the used car bubble to pop. If you want to know more about that, check out the Manheim Used Vehicle Index. A more entertaining way to follow the market is to listen to Lucky Lopez on his YouTube Channel.
  2. Tesla has greatly increased production at Shanghai, and ramped up significant Model Y production at Berlin and Austin. They have increase production at Fremont a bit.
  3. I could say competition has increased, but that hasn’t been a big factor in the US. It is more of a factor in China and Europe.
  4. The Model Y just isn’t as good a deal at $65,990 as it was at $39,990.
  5. The Inflation Reduction Act was passed and many of the changes take effect on January 1st, 2023. Nobody really knows if the Tesla vehicles will qualify for the full $7,500 or just half of the tax credit starting in a week, but when it was announced that the rules on “critical mineral and battery component requirements” were delayed till April a few days ago, people came to the conclusion that everyone building EVs in North America will get a pass for the first few months, and that caused Tesla customers to delay their deliveries. Why not wait a week to save $3,750? (You wouldn’t save the full $7,500 since Tesla has been giving a $3,750 credit for a couple weeks.) Well, Tesla upped the credit to $7,500 the next day and has thrown in 10,000 free Supercharger miles for good measure (worth maybe $1,000, depending on how you use them).
  6. Tesla investors have been concerned that demand for Tesla vehicles is soft and the stock has been weak.
  7. Elon Musk has been more vocal about his person politics (which I classify as moderate to slightly right wing, but you may disagree) and those views have been upsetting to many progressives in the US, traditionally those most likely to buy a Tesla or other electric vehicle. On the other hand, Elon’s more right wing views are making the car more acceptable to the half of the country that leans right. Overall, I think this is a slight negative for demand, but it could play out either way — it is too early for me to tell.
  8. This week, Elon was on Twitter Spaces (like Callin or Clubhouse) and he said many things, but the thing that is significant to this article is that when asked about how Tesla would handle a global recession, he responded that he could either slow growth to preserve profits or grow volumes more quickly and sacrifice profits. He said (consistent with Tesla mission to accelerate the transition to electric vehicles) that he would choose growth over profitability, as long as Tesla had sufficient cash reserves to avoid any chance of bankruptcy. As a Tesla shareholder, I’m not thrilled with that answer, but it should be welcome to the environmental community. (Note: it seems some have forgotten how much Elon, through his work at Tesla, has done for the environment.)


I think we will see a more affordable Model 3 and Model Y available over the next year. I’m not sure if it will be January, April, or later in the year, but with the volume Austin and Fremont are putting out of Model 3 and Model Y vehicles, it is clear (and Elon clearly understands this) that Tesla needs to have vehicles available at lower price points.

  • The Model 3 is already available at less than $40,000 with the $7,500 Tesla credit. On January 1st, I expect Tesla to announce that it will be eligible for the $7,500 tax credit. Tesla also gets thousands of other incentives for producing battery packs in the US. Then, depending on how demand goes throughout the year, I expect Tesla to either keep the entry-level Model 3 price (after the $7,500 tax credit) either below $40,000 or lower it by $2,000 every few months until demand equals supply. I think the net price will likely get to $35,000 and possibly under $30,000 by the end of the year.  A Tesla Model 3 at less than $30,000 would make it very difficult for Toyota to sell very many Camrys and for Honda to sell very many Accords.
  • The Tesla Model Y will see greater change. I expect the entry-level price of the Model Y to drop back below $40,000 (from $65,990 just a few weeks ago) when they reintroduce the standard range rear wheel drive (RWD) Model Y in a few weeks or months. Then, depending on how demand shapes up in 2023, the price (including the $7,500 tax credit) could fall to  $35,000 or even below $30,000. Remember that Tesla has consistently said that the Model Y has similar costs to build as the Model 3. But with Tesla having much more capacity to build the Model Y and not wanting those gigafactories to run at less than full capacity, I think they will need to price the Model Y very aggressively.

Good Car Bad Car thinks Tesla sells over 100,000 vehicles in the US every quarter now. They listed the Model Y as the 8th best selling vehicle in the 3rd quarter and the Model 3 as the 11th highest selling vehicle. Pricing the Model 3 and Y at $30,000 to $35,000 (after the tax credit) as I suggest above should allow Tesla to approximately double the sales of those two cars to about 200,000 a quarter. That is about what I expect the capacity of Fremont and Austin production to be in 2023 also. This will allow the Model Y to overtake the Toyota RAV4 as the best selling crossover and the Model 3 to overtake the Toyota Camry as the best selling sedan. It will be a while before the Cybertruck can challenge the Ford F-150 for the best selling truck in the USA position. Let’s see how initial production goes before I predict that.

Disclosure: I am a shareholder in Tesla [TSLA], BYD [BYDDY], Nio [NIO], XPeng [XPEV], and Hertz [HTZ]. But I offer no investment advice of any sort here.

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Paul Fosse

I have been a software engineer for over 30 years, first developing EDI software, then developing data warehouse systems. Along the way, I've also had the chance to help start a software consulting firm and do portfolio management. In 2010, I took an interest in electric cars because gas was getting expensive. In 2015, I started reading CleanTechnica and took an interest in solar, mainly because it was a threat to my oil and gas investments. Follow me on Twitter @atj721 Tesla investor. Tesla referral code: https://ts.la/paul92237

Paul Fosse has 232 posts and counting. See all posts by Paul Fosse