The company confirmed Tuesday it raised the price of the cheapest Model 3 by $400 to $35,400. It only started taking orders
for the cheapest version of the car at the end of February.
The company had long promised it would bring all-electric vehicles to the masses with a $35,000 version of the Model 3. But for most of the first two years of Model 3 production
, it built only more expensive models, as it tried to increase its cash flow
and post back-to-back profitable quarters
for the first time in its history.
The company could use all the cash it can get. Earlier this month Tesla sold $2.3 billion of debt and stock
to raise cash. Although a $400 price increase doesn’t seem like it would make much of a difference, it is a sign that the company is keeping a close eye on its finances. That $400 per Model 3 would translate into $20 million in extra revenue in a quarter if sales remain at its first-quarter sales rate.
“At this point, sadly, every dollar counts,” said Karl Brauer, executive publisher at Cox Automotive.
The $35,000 price is close to the average price of all US new car purchases. And it was important benchmark of Tesla’s promise to bring electric cars to the masses
. But as an upstart automaker, Tesla was having problems meeting that price. Other, established automakers like General Motors could afford to lose money on its all-electric Chevrolet Bolt and pay for any losses from its massive sales of gas-powered pickup trucks and SUVs. Tesla couldn’t do that.
Fortunately for Tesla, demand for the more expensive versions of the Model 3 were strong, allowing it to become the bestselling US luxury car
of any kind — gas or electric. But the promise of a $35,000 Model 3 proved elusive.
“I would guess that Elon Musk saw a point in time years ago where he could sell a $35,000 car and make money on it,” said Brauer soon after the cheapest version of the Model 3 went on sale. “So he committed to that number. Now they can technically say they have done it. But they realize it’s not a good business model. They’re probably losing money on each $35,000 car.”
So Tesla soon backed away from the lowest-priced model. A month ago it shut down online sales
of the $35,000 version of the car. By requiring buyers to place phone orders or go into a store to buy it, buyers had to interact with a sales person who could try to sell them a slightly more expensive version of the car. Many buyers might not even realize the $35,000 version was a possibility.
The cheapest version a buyer can order online comes with a slightly longer range battery and some other options not available on the $35,000 version, It was priced at $39,500.
And now Tesla has raised the price of all Model 3 versions, albeit by a modest $400, or a little more than 1% for the cheapest versions.
“Like other car companies, we periodically adjust pricing and available options,” Tesla said in a statement.