The company confirmed Tuesday it raised the price of the cheapest Model 3 by $400 to $35,400. It only started taking orders for the cheapest version of the car at the end of February.The company had long promised it would bring all-electric vehicles to the masses with a $35,000 version of the Model 3. But for most of the first two years of Model 3 production, it built only more expensive models, as it tried to increase its cash flow and post back-to-back profitable quarters for the first time in its history.The company could use all the cash it can get. Earlier this month Tesla sold $2.3 billion of debt and stock to raise cash. Although a $400 price increase doesn’t seem like it would make much of a difference, it is a sign that the company is keeping a close eye on its finances. That $400 per Model 3 would translate into $20 million in extra revenue in a quarter if sales remain at its first-quarter sales rate.
“At this point, sadly, every dollar counts,” said Karl Brauer, executive publisher at Cox Automotive.
The $35,000 price is close to the average price of all US new car purchases. And it was important benchmark of Tesla’s promise to bring electric cars to the masses. But as an upstart automaker, Tesla was having problems meeting that price. Other, established automakers like General Motors could afford to lose money on its all-electric Chevrolet Bolt and pay for any losses from its massive sales of gas-powered pickup trucks and SUVs. Tesla couldn’t do that.Fortunately for Tesla, demand for the more expensive versions of the Model 3 were strong, allowing it to become the bestselling US luxury car of any kind — gas or electric. But the promise of a $35,000 Model 3 proved elusive.
“I would guess that Elon Musk saw a point in time years ago where he could sell a $35,000 car and make money on it,” said Brauer soon after the cheapest version of the Model 3 went on sale. “So he committed to that number. Now they can technically say they have done it. But they realize it’s not a good business model. They’re probably losing money on each $35,000 car.”
So Tesla soon backed away from the lowest-priced model. A month ago it shut down online sales of the $35,000 version of the car. By requiring buyers to place phone orders or go into a store to buy it, buyers had to interact with a sales person who could try to sell them a slightly more expensive version of the car. Many buyers might not even realize the $35,000 version was a possibility.
The cheapest version a buyer can order online comes with a slightly longer range battery and some other options not available on the $35,000 version, It was priced at $39,500.
And now Tesla has raised the price of all Model 3 versions, albeit by a modest $400, or a little more than 1% for the cheapest versions.
“Like other car companies, we periodically adjust pricing and available options,” Tesla said in a statement.