Tesla Model 3 price cut drops it under $40,000; Model Y also reduced

What just happened? Tesla has once again dropped the price of its entry-level Model 3 sedan and Model Y SUV in the U.S. With the latest price cut, the base Rear-Wheel Drive Model 3 now starts at $39,990, down $2,000 from its earlier price of $41,990. On top of that, buyers are also entitled to a $3,750 federal tax credit for buying an EV, which should take the Model 3's effective price down to $36,240.

The prices of the Dual-Motor Performance variant, however, remains the same, meaning it still starts at $52,990. The Long Range variant is unavailable for now, but Tesla says it will go on sale again later this year.

Unlike the Model 3, all variants of the Model Y are getting a uniform $3,000 price cut. Starting with the new entry-level Model Y AWD with 4,680 cells, it now starts at $46,990, down from $49,990. Introduced earlier this month, the new model comes with a 279-mile range, a 135 mph top speed, and a 0-60 time of 5.0 seconds.

The Long Range Model Y is now priced starting at $49,990, down from $52,990 at the start of this month. As for the Performance model, it now starts at $53,990, down from $56,990. Just last week, Tesla reduced the prices of both these models by $2,000 each. All the Model Y variants are eligible for the full $7,500 federal tax credit, meaning the effective pricing for the entry-level Model Y could be as low as $42,490. In California, which offers its own incentives for EVs, the pricing could go down to as low as $37,490.

The price cuts will make Tesla's cheapest models even more affordable, thereby attracting new buyers who would otherwise not have considered getting an EV, or opted for other brands. It is also expected to help the company meet its ambitious sales targets for the year amidst growing competition from a slew of American, European, and Asian companies.

The latest round of price cuts comes just days after Tesla reduced the MSRPs of all its popular models, including the Model 3, Model Y, Model S and Model X. The company also announced multiple other price cuts in recent months, which helped it substantially increase its sales in the past quarter. Tesla delivered a record 422,875 EVs in Q1 2023, and is expected to continue its upswing in the coming months, thanks to the growing popularity of EVs in the U.S. and around the world.