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An entry-level Tesla now costs less than the average new car

Tesla recalls over 362,000 vehicles
Tesla voluntarily recalls over 362,000 vehicles after safety report on full self-driving mode 06:53

An entry-level Tesla now costs less than the average new car after the automaker started slashing prices on its vehicles earlier this year, making them more affordable than some new gas-powered cars.

The Tesla Model 3 now starts at $43,000, not including the $7,500 tax credit Americans can get for buying an electric vehicle. That brings the after-rebate price of a Model 3 down to $35,500. 

Even without the tax credit, a Model 3 costs $4,930 less than the average new vehicle sold in the U.S., according to a Bloomberg analysis. At the same time, new gas-powered cars have been increasing in price, with the average cost of a new car in January sitting at $49,388, a 6% increase from a year earlier, according to Kelley Blue Book data. 

That's noteworthy because automotive industry watchers have been waiting for the day when electric vehicles could match or beat the price of their gas-powered siblings. 

To be sure, the electric vehicle segment as a whole hasn't fully reached that milestone yet. Dozens of electric cars at dealerships cost north of $50,000 — including the the Genesis Electrified G80 (starting price at $79,825), the BMW i4 (starting at $52,000) and the Audi RS e-tron GT (starting at $105,000). 

EV price war

Ford reduced the price on its electric Mustang soon after Tesla's move and, in doing so, set off an electric vehicle price war, said Dan Ives, an analyst at Wedbush Securities.

"In this EV arms race, Tesla is uniquely positioned around scale, brand, battery technology, and the Musk DNA while others are aggressively going after market share in this all out Game of Thrones battle," Ives wrote in a research note last month. 

The electric vehicle market — which is expected to reach $1.1 trillion globally by 2030 — has indeed had its own starts and stops in recent years, ignited by supply-chain woes caused by the pandemic and Russia's ongoing war in Ukraine. In 2022, automakers hiked the price of EVs as they struggled to get raw materials for making lithium-ion batteries. At one point last year, the Model 3 price climbed as high as $62,000.

Electric vehicles: Who's ahead, who's behind 02:37

"Pivotal year" for EVs

Automotive industry experts said it's important to watch the price of electric vehicles as the U.S. tries to loosen its dependency on fossil fuels and gas-powered cars. Charging stations are sprouting up nationwide to encourage consumers to buy electric, but price hikes from 2022 put many of those vehicles financially out of reach of the middle class, experts said. 

Automakers are battling for customers and "2023 is a pivotal year that will establish the winners and losers in this EV landscape with Tesla high on top of the mountain."

Other analysts said last month that Tesla is dropping its prices because of slowing demand, pushing the company to prioritize sales volume over profitability. This week, U.S. safety regulators pressured Tesla into recalling nearly 363,000 vehicles after their self-driving feature failed to follow posted speed limits or stop at intersections. 

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