Tesla's affordable car is here, with the price of the downgraded Model Y dropping below $40,000, and the Model Y3 starting at less than $37,000

The highly anticipated Tesla affordable car is here. In response to the impact of the end of the U.S. government tax credit, Tesla has lowered the starting price of its best-selling Model Y standard version to below $40,000, and the starting price of the Model 3 standard version has also been reduced.

On Tuesday, October 7th, during the U.S. stock market's midday session, Tesla's official website updated the ordering information for the Model Y and Model 3 standard versions. The website shows that the starting price of the Model Y standard version is currently $39,990 in the U.S. market, approximately 11% cheaper than the previous starting price of the Model Y.

This is generally consistent with recent news. Earlier on Tuesday, Wall Street Insight mentioned that the manager of Tesla's Berlin factory stated that the all-new simplified Model Y would be "about 10% cheaper."

On Tuesday, Tesla also announced the affordable Model 3, with a starting price of $36,990, making it Tesla's cheapest model currently available.

How Affordable Cars Reduce Features and Pricing

A report from this past Monday stated that to offset the impact of the government's tax credit cancellation, Tesla would launch a cheaper Model Y model, which would reduce some functional configurations and use fewer high-end materials.

On Tuesday, Tesla's official website did not provide detailed information on how the affordable Model Y reduces costs. However, clues can be found by comparing some basic configuration changes.

In terms of appearance, the affordable Model Y has removed the LED light strips, replacing them with a simpler front bumper, and the rear projection tail lights have also disappeared. The standard version of the affordable Model Y is equipped with smaller 18-inch wheels, with 19-inch wheels available as an option. The standard version of the affordable Model Y only offers three color options: gray, white, and black, with the latter two color options priced at $1,000 and $1,500, respectively. It has also removed the panoramic glass roof that is standard on other Model Y versions.

Internally, based on the testing standards set by the U.S. Environmental Protection Agency (EPA), the range of the affordable rear-wheel-drive Model Y is expected to be 321 miles, which is a 10% reduction compared to the range of the high-end rear-wheel-drive Model Y.

In contrast, the affordable standard version of the Model Y lacks a second-row touchscreen, meaning that rear passengers cannot use the 8-inch touchscreen, and the number of speakers in the sound system is less than half that of the high-end rear-wheel-drive version. The affordable Model Y does not have ambient lighting, and the steering wheel has changed from electric adjustment to manual adjustment.

In New York State, USA, due to the state government's electric vehicle incentive policy, consumers can purchase these two standard models at lower prices, with the starting price of the Model 3 standard version dropping to $34,990 and the Model Y standard version starting at $37,990.

Tesla executives mentioned during the second-quarter earnings call that the company began manufacturing more affordable models in June but chose to delay mass production until the U.S. federal government gradually phased out the maximum $7,500 tax credit for purchasing clean energy vehicles. Tesla's Chief Financial Officer Vaibhav Taneja warned at that time that the pace of production increase would be slower than initially expected.

The Development Journey of Affordable Models Has Been Bumpy

Investors and fans have been looking for clues about Tesla's progress on affordable models for years. Tesla CEO Elon Musk hinted at this plan back in 2018, stating that Tesla would launch an electric vehicle priced at just $25,000 within a few years to fill the gap in the market for electric vehicles under $30,000.

However, Musk has repeatedly missed the deadlines he set for himself year after year. Last October, when investors asked when the $25,000 model without autonomous driving features would be launched, Musk called such an approach "meaningless" and "stupid," stating that it was completely contrary to the company's philosophy.

Tesla then shifted its focus to the development of autonomous driving technology, which has become Musk's top priority for the company. The company is also working to shift investors' attention to its future prospects as a robotics and autonomous vehicle business.

However, with the $7,500 U.S. federal tax credit policy set to expire this month, it seems inevitable that Tesla will lower the prices of its existing models in the absence of affordable models.

Tesla released a teaser video on social media platform X last Sunday, hinting at an important announcement on Tuesday, which the market widely expects to be related to affordable electric vehicles.

Market Challenges and Competitive Pressure

The launch of the affordable Model Y and Model 3 is part of Tesla's strategy to smoothly navigate the pain of the tax credit expiration. Tesla is facing multiple challenges. The company's vehicle sales have declined for several consecutive quarters, partly due to consumer opposition to Musk himself and his political stance, as well as the impact of an aging product line and increasing competition from rivals such as Volkswagen and BYD.

Last week, Tesla announced that global deliveries in the third quarter reached 497,099 units, setting a record for the highest quarterly deliveries and significantly exceeding analysts' expectations. However, this achievement was partly due to a rush to purchase before the expiration of the tax credit policy. This early release of demand may put pressure on Tesla's sales growth in the coming months. Investors expect that as electric vehicle subsidies expire, Tesla will struggle to replicate such outstanding performance in the third quarter.

Since the delivery of the Cybertruck began at the end of 2023, Tesla has not released any new mass-produced models. The Cybertruck has never reached the popularity of the Model 3 sedan or Model Y SUV and has faced at least eight voluntary recalls in the U.S After a 36% plunge in stock price in the first quarter of this year, Tesla's stock rebounded 40% in the third quarter, with a cumulative increase of 12% year-to-date. This increase is partly supported by Musk's personal purchase of approximately $1 billion in Tesla stock in mid-September.

After the release of the affordable model on Tuesday, Tesla's intraday stock price narrowed to less than 0.9%, but the decline subsequently widened again, closing down over 4%. Analysts believe that many investors had originally hoped to see other new products, such as the next-generation Roadster, released by Tesla on Tuesday.