Elon Musk delivers unexpected inflation news
In these uncertain times where rumors of recession grow louder every day, any news suggesting that prices could fall is very good news, especially for consumers and authorities for whom inflation has become a headache.
After all, high inflation could cost politicians in power at the ballot box.
Inflation, which is reaching multi-year highs around the world, is reflected in the prices of almost everything: from groceries to smartphones, computers to toothpaste and soap to shower gel.
Airline ticket prices have skyrocketed. Gasoline prices at the pump remain high, even though we are far from the peaks reached a few weeks ago.
It is in this context that Elon Musk, CEO of Tesla (TSLA) – Get the report from Tesla Inc. has just made findings that will delight almost everyone: consumers, Tesla customers, investors and politicians.
Relief for Tesla
In a series of tweets posted on July 28, Musk announced that prices for the raw materials Tesla needs to make its cars are falling. Recall that the prices of raw materials (nickel, cobalt, palladium, lithium, etc.) have risen sharply since the invasion of Ukraine by Russia on February 24. The unprovoked war has added to the shortage of chips caused by supply chain disruptions generated by the covid-19 pandemic.
All of this has led automakers to pass on rising costs to consumers through successive increases in vehicle prices.
“Inflation may trend down,” the billionaire told his more than 102.2 million Twitter followers.
“More Tesla commodity prices tend to go down than up,” he added in another post.
“Are the prices for a tesla going to go up,” one Twitter user asked him.
“Too early to say for sure,” Musk replied.
Musk’s posts have sparked intense interest from his millions of fans, curious whether lower inflation means Tesla vehicle prices will drop.
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“If inflation calms down, Tesla’s prices will go down, right?” asked a fan.
The base price of the Model 3, Tesla’s entry-level sedan, is currently $46,990 without options offered by the Austin, Texas-based automaker. As for the Model Y SUV, one of the best-selling electric vehicles in the world, the base price is $65,990.
After steadily raising the prices of its vehicles in 2021, Tesla had taken a kind of break at the start of the year. But in March, the automaker started raising prices again. In April, Musk’s group made another price hike on long-range vehicles.
Will the prices of Teslas go down?
In June, the company made another price increase on almost all models. The Model 3 sedan, long-range version, saw its price increase by $2,500, from $54,490 to $57,990. As for the Model Y SUV/crossover, it saw the prices of the various variants increase: The long-range Model Y went from $62,990 to $65,990, an increase of $3,000. The performance Model Y, meanwhile, saw its price jump $2,000, from $67,990 to $69,990.
The price increase for the Model S luxury sedan has increased sharply. Pricing for the twin-motor all-wheel-drive version rose from $99,990 to $104,990, up $5,000. The price hike was $6,000 for the Model X luxury SUV, including the long-range dual-motor all-wheel drive. Its price has dropped from $114,990 to $120,990.
These various price increases have allowed Tesla to increase its profit margins. In the second quarter of 2022, the world’s leading automotive group, by market capitalization ($880.2 billion at the time of writing), posted an adjusted EBITDA (margin before interest, taxes, depreciation and amortization) margin of 22. 4%, down from 20.8% a year ago, according to its earnings report.
But in mid-July, Musk promised to lower Tesla car prices if inflation slowed.
“If inflation calms down, we can lower car prices,” the tech mogul pledged.
He repeated that promise during the second-quarter earnings call on July 21.
“When or if we see indications that the inflation rate is coming down, then we won’t need to raise our car prices,” Musk told analysts. “It is possible that there will be a slight drop in car prices. But it basically depends on macroeconomic inflation. It is not something we control.
“If I had to guess, and I’d take that with a grain of salt, I think inflation is going to come down towards the end of this year,” the chief executive also said the same day.
US inflation accelerated to forty last month, according to data from the Bureau of Labor Statistics in mid-July. Consumer prices rose 9.1% in the 12 months to June.
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