Why Does Tesla Cost So Much?

Tesla
Even with tax rebates taken into account, Tesla vehicles are pricey. Yet their demand is still quite strong. The fact that demand has been surpassing supply is one factor in the price’s high level. Building additional plants and increasing manufacturing capacity might lower prices.

Owners of electric cars from Tesla Inc. (TSLA) can save a lot of money on fuel, but there are additional expenses to take into account, such as a higher than typical price tag.

The initial Tesla vehicles were released at relatively high price points, and the company’s vehicles are still pricey when compared to the industry standard.

As of August 2022, the basic price of the Model X was around $120,000, that of the Model S sedan was approximately $105,000, that of the Model 7 was approximately $67,000, and that of the Model 3 was approximately $47,000.

You should examine electric car tax benefits if you’re thinking about purchasing a Tesla. The $7,500 tax credit will be modified in various ways by the Inflation Reduction Act of 2022, which was passed into law on August 16, 2022.

With certain modifications, the tax credit has been extended until 2032.

Find out more about the tax credit thresholds for Tesla-type electric vehicles and how they affect the overall cost.

Why Tesla Cost So Much

Supply and Demand

Tesla is one of the companies paving the way in the rapidly evolving electric car sector. According to Kelly Blue Book statistics, the average cost of an electric car in July 2022 was $66,645, more than the $48,182 industry average. Tesla has concentrated on extending its premium lineup to include more affordable choices, such the Model 3. As the firm consistently breaks new sales records, demand for Tesla automobiles has led to a queue for back-ordered models.

Due to the high manufacturing costs, traditional automakers—primary Tesla’s rivals—have been hesitant to start producing electric vehicles (EVs). To counteract Tesla’s models, several of these manufacturers, such as Toyota (TM), Ford (F), and General Motors (GM), have already developed or have plans to launch all-electric vehicles.

Battery Technology

The most costly part of Tesla automobiles are the batteries, which are used to store and utilise electricity. Reducing the price of batteries per kilowatt-hour for its automobiles has been one of management’s top priorities, and the firm has made great progress in that direction. According to estimates, Tesla’s battery prices decreased from about $230 to $127 per kilowatt-hour in 2016 and 2019. Tesla’s battery costs are around 20% less than the industry average due to the company’s increased volume.

Batteries are the subject of extensive research and development (R&D), and it is hoped that soon the cost of battery power storage will be competitive with that of gasoline or other fossil fuels.

Tax Credit

The Inflation Reduction Act’s $7,500 tax credit for Tesla vehicles must eventually be complied with, and the corporation must follow battery sourcing guidelines.

The majority of the minerals and other materials required to create EV batteries must originate in North America. For new automobiles, the $7,500 tax credit is available. A tax credit of up to $4,000 or 30% of the sales price, whichever is smaller, may be given for used cars. The Model X and Model S, which are more costly electric vehicles, are not eligible for a tax credit. Sedans must be under $55,000 in price, while trucks and SUVs must be under $80,000 to be eligible.

And last, in order to qualify for the tax credit, you must have a certain income. Modified adjusted gross income (MAGI) limits for single filers are $150,000, for heads of household they are $225,000, and for joint filers they are $300,000.

Self Driving

Tesla supplies every vehicle with all the necessary gear for fully autonomous operation. Tesla’s self-driving software is the most sophisticated in the sector, despite the fact that it has not yet achieved complete autonomy. They frequently upgrade their cars’ self-driving software and distribute updates over the radio. The creation of all this hardware and software is quite expensive.

No other automaker ships any comprehensive self-driving technology-related gear.

Advanced Technology

Elon Musk is correct when he says that Tesla is like a computer on wheels. The most cutting-edge computer available is in these vehicles. Each Tesla has a computer, and the company creates the CPU, GPU, and hardware for processing neural networks.

Tesla also creates and manufactures its battery pack and AC motors. Other automakers, however, contract these parts to outside companies.

Conclusion

Even with tax rebates taken into account, Tesla vehicles are pricey. Yet their demand is still quite strong. The fact that demand has been surpassing supply is one factor in the price’s high level. Building additional plants and increasing manufacturing capacity might lower prices.

The expense of the electric battery packs that provide these vehicles their electricity is another major factor in Tesla’s high costs. The cost of batteries and their energy efficiency have decreased over the past few years, but the price of electric automobiles is still much more than the industry standard.

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