How Some Dealerships are Handling Tesla’s Price Cuts

How Some Dealerships are Handling Tesla’s Price Cuts

Many U.S. automotive dealerships are still grappling with electric vehicle prices and inventory, following market leader Tesla’s many price reductions throughout the year. As Tesla continues to offer more affordable vehicles — most recently including its cheaper Model S and Model X “Standard Range” — some dealers are struggling to keep prices low enough to be competitive in the eyes of consumers.

Above: A Tesla Model 3 (Image: Casey Murphy / EVANNEX).

A number of dealerships recently told Automotive News about how Tesla’s pricing strategy has affected their businesses. One such dealer included Sonic Automotive, whose head executive recently said price cuts at Tesla have been tangible for both its franchised dealerships offering used Teslas, and its new-vehicle business including EVs from Mercedes-Benz, BMW, Audi, Lexus and Toyota.

"It's certainly playing a role against electric vehicles from a new-car perspective because [automakers are] having to get more aggressive in terms of their pricing," said Sonic President Jeff Dyke.

"They're just producing an amazing product," Dyke said of the aforementioned brands, which are those offered by the dealership. "And it's a better product than Tesla. And as the pricing gets right, the inventory levels come up, you're gonna see a higher mix of electric vehicle sales."

Cox Automotive data recently showed that, in July, dealerships averaged 100-day EV inventory supplies, which was down from 103 days the prior month. Notably, the figure doesn’t include direct-to-consumer sellers such as Tesla.

But price cuts from Tesla have also made new EV buyers more interested in the company over other automakers, as Morningstar Chicago analyst David Whiston pointed out to Automotive News.

"You've had a lot of people buying Teslas already," Whiston said. "And now, with the price cuts Tesla's doing, they've been able to get new buyers who perhaps wouldn't have bothered buying an EV before."

Throughout 2023, Tesla has cut its prices by roughly 12 percent, as Kelley Blue Book data for early August shows. Additionally, Tesla’s new Model S and Model X “Standard Range” trims each come with $10,000 price cuts, at the cost of reduced driving ranges and acceleration. At this point, Dyke says it’s too early to know if buyers are becoming interested in traditional automakers’ EV contributions, the public is at least getting used to the idea of EVs at large.

"I think we've got another six months to a year of sort of crossing some new boundaries with the electric vehicle," Dyke added. "If the manufacturer[s] could get the pricing right and they keep their day supply in line, which are two big questions that they really need to focus on, then I think they can do very, very well. But if they're going to launch vehicles that are $112,000 when the counterpart combustion engine vehicle is $20,000 and $30,000 cheaper, they're gonna have a problem."

Still, traditional automakers have also been increasing their inventories of EVs, even as they work to bring prices down. Sonic CEO David Smith noted that a Mercedes dealer in California was the top EQS dealer in terms of sales of the EV. While the claim was left unconfirmed by a Mercedes spokesperson, Smith went on to note that sales were increasing in certain areas of the U.S. more so than others.

"That part of the country has been faster to adopt that car and so that store has actually been buying EQS from other parts of the country and shipping them out there," Smith said.

Penske Automotive Group had a 113-day supply of Mercedes EQS EVs as of the company’s Q2 earnings call in July, as noted by CEO Roger Penske.

"When you look at the U.S., EQS for Mercedes, we've got [a] 190-day supply right today as we sit here," Penske told shareholders.


Source: Automotive News