Despite promising to provide a full-electric vehicle that would be priced for the masses, Tesla has now announced that it will be slightly increasing the price tag for its Model 3 electric vehicles. Elon Musk's electric vehicle company announced that it would be raising prices for its cheapest Model 3 units by $400, increasing the price to $35,400.
The $35,000 price tag initially promised was an important figure given that it is the average asking price for new cars being sold in the United States.
Tesla had been working hard over the past couple of years to finally produce a product that would cost only $35,000. The firm initially produced more expensive models to increase its cash flow and to hopefully generate enough profits to finally take on the challenge of building a mass-market electric product.
A $400 increase may not sound like much, but it does indicate that Tesla is having trouble selling its Model 3 units at current prices. It also clearly shows that Tesla is keeping close attention to its finances. A $400 increase would roughly translate to about $20 million in extra revenue for the company based on its first-quarter sales rates. Analysts believe that Tesla is now hanging on to every dollar it can get a hold of to continue to become profitable.
Unlike more established automakers such as General Motors and Ford, Tesla does now have the luxury of generating profits from gasoline and diesel-powered products. GM, for example, is able to take on losses for its electric products as most of its profits do come from its oil-powered pickup trucks and SUVs. Tesla has so far been very successful with it's Model 3 units, selling more of the model's expensive iterations. As it stands, the Model 3 is currently the best-selling US luxury car in the market, even beating its gasoline counterparts.
Technically, Tesla was able to offer a $35,000 electric vehicle for the masses. However, the company likely realized that it wasn't such a good business model to generate any amount of profits.
The company is likely even losing money on each $35,000 car it sells, which is probably the reason why it had to increase the price tag of its base models.
Tesla has slowly been backing away from selling its cheapest models, going as far as removing the variant from its online stores. Currently, the only way for buyers to get their hands on the cheapest Model 3 is either by going into a store or ordering it by telephone. Those who have attempted to do so were reportedly talked into buying a more expensive version of the car.
