Tesla is providing yet another traditional inducement to move metal. For those buying new Model Y electric vehicles, there’s an alluring financing rate available that is below market value.
On its website, Tesla claims to be providing an annual percentage rate of 0.99% on qualified new Model Y orders. A week ago, that offer was not available. 6.49% APR was the advertised rate at that time. The rate for Model 3 remains at 6.49%.
The reduced rate saves a customer around $100 per month when compared to Tesla’s example down payment of $4,250 on a basic model.
Potential Tesla purchasers should benefit from the offer. Indifferent to Tesla. Volume can be boosted by reduced financing rates, but Tesla is paying for a lower, below-market rate. Another price reduction in the face of a sluggish increase in demand for electric cars.
When an automaker makes an exceptionally low offer, it’s usually interpreted as a reduction in price for the manufacturing portion of the company. With the low-cost loan, the car company’s financing division makes money. The financing company’s goal is to earn a spread on its loan book by borrowing money at market rates.
Rewards are not a novel concept. Since late 2022, Tesla has lowered prices and provided incentives in an effort to increase volume as the high-end of the EV market grew more crowded and competitive.
Price cuts worked well in 2023. Tesla delivered some 1.8 million vehicles, up from 1.3 million in 2022. Price cuts haven’t had the same impact in 2024. Tesla delivered about 387,0000 units in the first quarter, down almost 9% from the same time a year ago.
Tesla isn’t the only one struggling to grow volumes. Americans bought 268,909 battery-electric vehicles in the first quarter, according to data provider Cox Automotive, up about 3% from a year earlier. Growth in the fourth quarter was closer to 40%.
The Model Y sold 96,729 units in the first quarter, up 1% from a year earlier. Growth was slow, but the Y still accounted for 35% of all EV sales. The Y is Tesla’s best-selling vehicle. It was the second best-selling non-truck in the U.S. in 2023, trailing only the Toyota RAV4. (The three best-selling vehicles in the U.S. are all pickup trucks.)
Coming into Monday trading, Tesla stock is down about 32% so far this year, trailing the Nasdaq Composite by about 41 percentage points.
Falling earnings estimates, a function of lower volumes and pricing, have weighed on shares. Wall Street expects Tesla to earn about $2.40 a share. At the start of 2024, the estimate was closer to $3.81 a share.
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