New Model Y price increase lends credence to Tesla's tax credit claims

Following an initial $500 Model Y price bump that Elon Musk said reflected the demand increase that resulted from the drastic 31% (with subsidies) January cut, Tesla now increased the Model Y LR price by another US$1,500. This latest increase, however, has a lot to do with the US$7,500 federal tax credit for new electric vehicles that kicked in this year. 

Las month, Tesla said that the radical price reduction of its vehicles followed decreases in production costs but was also meant to include as many cars as possible under the Treasury Department's price cap for receiving the federal subsidy which is US$80,000 for an SUV like the Model Y and US$55,000 for a regular sedan like the Model 3. Before Friday, however, the Treasury counted the 5-seat Model Y as a crossover of sorts and didn't extend the SUV price threshold to it, but was rather lumping it together with the Model 3 price caps.

When the Treasury issues a statement that it has now stopped using the EPA's CAFE standard for category classification and will consider not only the 5-seat Tesla Model Y, but also the Mustang Mach-E or the Cadillac Lyriq as SUVs, Tesla didn't skip a beat and immediately raised prices as follows:

• Model Y Long Range: $54,990 (+$1,500)
• Model Y Performance: $57,990 (+$1,000)

With the previous $500 bump, the Model Y LR is now more expensive than in the aftermath of the price war that Tesla started last month by two grand and Elon Musk is on record saying that Tesla might still be increasing prices in reaction to the changes in demand. "Thus far in January, we've seen the strongest orders year-to-date than ever in our history. We currently are seeing orders at almost twice the rate of production. So it’s hard to say that will continue twice the rate of production, but the orders are high. And we've actually raised the Model Y price a little bit in response to that," said Musk, indicating that Tesla may be done with price cuts.

It will apparently try and preserve its enviable profit margins this year as well, while most of the EV affordability target will be outsourced to the government's subsidy scheme. This might be good news for VW and other automakers which said that they will be sitting out Tesla's EV price war for now.

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