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Elon Musk, Tesla Make a Rare Move

The electric vehicle manufacturer seems to be trying to address a demand problem in the United States and China.
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It is unheard of.

What still seemed unthinkable a few months ago is actually happening: Tesla  (TSLA) - Get Free Report, the world leader in electric vehicles, is making big promotions on its cars. 

Elon Musk's group has just offered discounts on two of its most popular models. And these are big promotions. 

In early December, the Austin, Texas-based vehicle manufacturer surprised everyone by announcing a spectacular offer to buyers. They would receive a credit of $3,750 for any new Model 3 and Model Y, purchased and delivered in December 2022. 

The offer was available in the "Existing Inventory" section of the Model 3 and Model Y pages on the Tesla website, TheStreet noted on December 3. For example, a Model 3 Rear-Wheel Drive Model Year 2022, is currently sold at a base price of $48,350. But Tesla says that the price after potential savings is $41,750. The battery range is 267 miles.

"Take delivery of a new Model 3 or Model Y in December 2022 for a $3,750 credit," the company said without further details. 

Electric-car Maker Xpeng Shrugs Off Concerns Tesla's Steeply Discounted Model Y Will Win Over Mainland Chinese Drivers

A $7,500 Discount

A little over two weeks later, the vehicle manufacturer has just doubled this promotion. It is now offering a $7,500 discount for consumers who purchase the Model 3 and Model Y between December 21 and December 23, TheStreet found on the group's website.

Tesla's offer is more attractive than the federal tax credit which will come into effect in 2023, because the government has set draconian criteria in order to benefit from it. The tax credit of $7,500 is divided in two: $3,750 will apply if at least 40% of the minerals of the battery powering the vehicle come from the U.S. or a country having a free-trade agreement with the U.S, according to the Inflation Reduction Act (IRA). 

The other $3,750 will apply if at least 50% of the battery components come from the U.S. or from countries with a free-trade agreement with the U.S.

In summary, the electric vehicle you buy can benefit from the full $7,500 tax credit, half or none, depending on the battery components and minerals. From 2024, consumers will be able to deduct the tax credit directly from the dealer. Until then, this will be done when they file their tax returns in April of each year, as is currently the case.

In addition to the $7,500, Tesla is also offering consumers 10,000 free Supercharger miles.

"Take delivery of a new Model 3 or Model Y between December 21 and 31, 2022 for a $7,500 credit and 10,000 miles of free Supercharging," the company says on its website.

It explained: "Free Supercharging will be credited to your Tesla Account in the month of January 2023 and will remain valid for a period of two years from your delivery date." "Supercharging credits are tied to your Tesla account and cannot be transferred to another vehicle or person in case of an ownership transfer. Tesla shall not be liable if delivery of your vehicle does not happen before December 31, 2022. Used vehicles are excluded from this promotion."

Tesla's CEO Elon Musk

Does Tesla Have a Demand Problem?

While these discounts are likely to delight consumers, they suggest that Tesla must be dealing with a demand problem behind the scenes. During the third quarter, the automaker had warned that its production during that period had exceeded deliveries by around 22,000 units. 

Chief Financial Officer Zachary Kirkhorn had said that the same was likely to happen in the fourth quarter as well.

"On the delivery side, we do expect to be just under 50% growth due to an increase in the cars in transit at the end of the year, as noted, just above," Kirkhorn told analysts during the third quarter earnings' call. "This means that, again, you should expect a gap between production and deliveries in Q4, and those cars in transit will be delivered shortly to their customers upon arrival to their destination in Q1."

These statements were followed by the reduction in the prices of Tesla cars in China in the order of 5% to 9%. Other actions followed, including advertising on TV in China.

Bloomberg News recently reported that Tesla has decided to cut production by 20% in its Shanghai factory in China.

It is very rare to see Tesla make promotions, as the reputation of the carmaker has so far managed to make a difference to consumers. Besides demand, Tesla also seems to be struggling to develop longer-lasting batteries at its Austin plant.

A sign that things are not going the way Musk wants, is that the billionaire has brought Tom Zhu, the boss of Tesla in China to run the Tesla factory in Austin, which manufactures the Model Y SUV/crossover, and soon the long-awaited Cybertruck, Tesla's futuristic pickup truck whose production should start in mid-2023.

Tesla is going through a real stock market nightmare this year. The group's share is down 61% in 2022.