Tesla offering discounts of over $1,300 on some U.S. Model 3 cars

Tesla Inc. is offering discounts of more than $1,300 on some Model 3 cars in its U.S. inventory following even heavier discounts in Europe, according to a Reuters’ review of its website, even as the electric carmaker has raised U.S. prices on most newly ordered cars this month.

Facing economic headwinds and mounting competition, Tesla this year has aggressively cut vehicle prices in several regions and is resorting to the traditional automakers’ tactic of offering incentives to clear inventory, analysts said.

On Tuesday, CEO Elon Musk told shareholders Tesla will try advertising for the first time, a move analysts said could drum up demand. Musk warned Tesla was not immune to the global economy, predicting it will be difficult for the next 12 months.

Tesla slightly raised prices of some new models twice this month in the U.S., although prices remain much lower than they were before the price cuts began this year.

Tesla now offers discounts of more than $1,300 on some Model 3 cars, up from the $250 discounts earlier this month on some Model Y and Model 3 vehicles, according to the website. As of Friday, the $250 discount was no longer offered on Model Y.

U.S. prices for Model 3 start at $40,240 and Model Y at $47,490.

“Tesla is beginning to rely on incentives in the same manner traditional automakers have when their dealer inventories begin to spend too much time on the lot,” Ivan Drury, Edmunds.com director of Insight, said, adding the incentives “signal that Tesla has begun to slightly oversupply the market.”

Tesla plans to launch a revamped version of its Model 3 sedan this year to refresh its aging product lineup. The price cuts to drive up sales volume reflect pressure Tesla faces from competition and an aging product lineup, rival Ford Motor Co. CEO Jim Farley said last month.

Tesla’s U.S. discounts follow deep discounts in Europe this month as production from factories in China and Berlin outpaced demand.

Tesla offers discounts of up to 3,490 euros ($3,841.79) for a China-made Model 3 and 3,660 euros ($4,028.93) for a Berlin-made Model Y, according to Tesla Info’s list of global inventory. Other markets such as France, Germany, United Kingdom and Italy offer similar discounts.

Tesla researcher Troy Teslike tweeted on Friday that Tesla solved its inventory problem in China by exporting from that market.

“The problem is that the cars that are exported end up in inventory in Europe which is close to an all-time high. Now Europe has an inventory problem but not China,” he said.

Tesla did not respond to Reuters’ request for comment, but Musk at the shareholder meeting said the company’s approach is straightforward.

“We see what the demand is and then we adjust pricing to meet the demand,” he said.

In the first quarter, Tesla had 15 days worth of global inventory, leaner than the industry norm but its highest in nearly three years. The industry average for inventory in just the United States is 35 days.

Tesla also produced more cars than it sold, which analysts said pressured the company which lacks dealers to absorb excess inventory.

When demand slows, inventory “starts to become a drain on cash very quickly,” Tyson Jominy, an executive with consultancy J.D. Power, said.