• The two still cost less than they did at end of first quarter
  • Elon Musk has said he’ll sacrifice profit margins for growth

Tesla Inc. increased prices of its Model S and X vehicles in the US after steep markdowns early this year took a toll on profitability and the carmaker’s shares.

Tesla bumped up each variant of its high-end models by $2,500, raising the cost of the sedan and sport utility vehicle by 2% to 3%, according to the company’s website. The Model S and X now start at $87,490 and $97,490, respectively.

The increases still leave the vehicles cheaper than they were at the end of the first quarter, when price cuts across Tesla’s lineup squeezed profit margins. The adjustments come two days after Tesla lowered prices of its much higher-volume Model Y SUV and Model 3 sedan for the second time this month.

Tesla shares slid 9.7% on Thursday, their biggest drop since Jan. 3, after Chief Executive Officer Elon Musk suggested the company will keep cutting prices to stoke demand. The stock traded up less than 1% at 9:32 a.m. Friday in New York.

“We’ve taken a view that pushing for higher volumes and a larger fleet is the right choice here versus a lower volume and higher margin,” Musk told analysts late Wednesday.

Tesla moving around prices of its higher-end vehicles is much less meaningful to its bottom line than adjusting what it charges for the Model 3 or Y. The company sold just 10,695 Model S and X vehicles in the first quarter, about 2.5% of total deliveries. While Musk has said the two vehicles are “of minor importance” to Tesla’s future, the company recently started exporting them again from its California car plant.

Tesla’s automotive gross margin excluding sales of regulatory credits dipped to 19% for the quarter, below the 20% threshold that Chief Financial Officer Zachary Kirkhorn said three months ago the company expected to stay above this year. Its operating margin shrank to 11.4%, a roughly two-year low.

The company remains ahead of other automakers in return on sales: In 2022, General Motors Co. reported an operating margin of 6.6%, while Ford Motor Co.’s was 4%.

Hours before the price hikes were posted, Ford CEO Jim Farley said Tesla could start a price war and turn certain electric vehicles into commodities.

Tesla’s moves to bolster growth are “completely rational and should surprise no one,” Farley said at a charity event in Detroit. “Price wars are breaking out everywhere. Who’s going to blink for growth?”

Tesla’s unique position among EV makers has drawn comparisons to the early days of Ford. Its early 1900s innovation — the moving assembly line — put other carmakers out of business by lowering costs to levels other companies couldn’t match.

Musk said Wednesday that Tesla isn’t looking to put competitors out of business, but to make its cars more accessible amid rising interest rates and stubborn inflation.

Written by: Bloomberg News — With assistance by Chunying Zhang, Dana Hull, Sean O’Kane and Danny Lee @Bloomberg.com

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