This is the weapon Tesla uses to cut prices: the profit margin on each car sold

A few days ago Tesla surprised us with news nobody expected. The prices of its cars, specifically the Model Y and Model 3, dropped considerably in every market where they are sold. Good news for those who were thinking of buying one of these cars, and mixed news for those who had reserved one before the announcement and saw the price fall below what they had paid.

The American brand was followed by others, which joined this trend and also cut the prices of their electric models. A shake-up in the market that will surely give electric sales a new boost. For Tesla, the reason was the need to clear the stock it had built up, the increase in production and, above all, the reduction in manufacturing costs.

Tesla has invested heavily in R&D+i, which has allowed it to make each unit far cheaper to manufacture than it was only a few years ago. The use of large single-piece castings reduces production time and the cost of each unit. So it is becoming ever cheaper to build a Tesla. And that is despite the manufacturer maintaining a profit of just over $15,000 on every car sold.

This profit margin per unit sold makes it the brand that earns the highest profit from selling its cars. For comparison, that figure is roughly four times what Toyota earns and five times more than Ford. This is a significant shift, since not long ago Tesla was even losing money on every car it built.

In China, the main market for electric cars, Tesla ranks above the brand Xpeng, which was the first to react quickly to Tesla’s price cuts. In terms of profitability, Xpeng reports gross profits of $4,565 per car sold.

The other major Chinese manufacturer, BYD, reports gross profits of $5,456 per vehicle sold. This brand has not yet joined the price reductions, although with that margin per vehicle it has little room to manoeuvre. Tesla can keep playing with discounts and price cuts, since its margin is very high and for now it seems to pass part of that margin on to the buyer. Will it lower prices further, taking advantage of its advantage?