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Tesla Hikes Its Model 3 Price By $2500, CEO Blames Global Chip Shortage


June 2nd, 2021 - The giant electric automaker has announced price hikes for its standard sedan, Tesla Model 3. The past two months have seen Tesla increase the price of its Model 3 sedan four times. According to CEO Elon Musk, the hikes are caused by the global chip shortage.


In an industry-wide challenge that has seen tech giants suffer from the pandemic-induced drag on chipsets, electric automakers have had to take measures to adapt. Last month the Chinese electric Nio (which many correlates to as the Chinese equivalent of Tesla) recorded an all-time low in orders. They cited the shortage of chips too.


Chipset and Semiconductor Scarcities


Tesla has also suffered from the knock-on effect. The chipset shortages stem from the global supply chain disruptions caused by the Covid-19, which has hit scores of industries that produce toasters, smartphones, and other computerized goods.


Car manufacturers haven’t been spared. Car factories have been forced to stop operations as there is a global shortage of semiconductors that are essential components in control functions of the increasingly computerized car productions of this generation. Tesla, being the manufacturer of the most computerized automobile on the market today, has been hit especially hard.


The Q1 Supply Chain Challenges Unprecedented


On May 31st, 2021, Tesla's CEO Elon Musk said that the scarcity of chips and semiconductors was causing a slow-down in productions. He also cited the supply shortages as seen in Q1 2020 as the most severe the company has ever experienced. Therefore, these extra pressures induced by the drag-on effect of chips have led the tech giant to rethink its pricing for cars.

Musk added that the existing chipset challenge is the sole reason the automaker has had to charge more for its Model Y and Model 3 sedans. He didn’t exclusively announce on his official page as he does often, but he pointed out this when he posted a tweet in response to a complaint about price hikes from one user.


What About Tesla’s Other Models?


As already stated, the models that have seen price hikes are Model 3 and Model Y sedans. And according to their list price [what is referred to as the Manufacturer Suggested Retail Price (MSRP), which represents the price for basic versions of cars], Tesla’s Model Y SUV price increased by 3% from $49,989 to $51,489, while the price of Model 3 increased by 7% from $36,489 to $39,489 in the period spanning from late February to mid-May.


Tesla’s other models, including its luxury sedan Model S, haven’t had price hikes though. The list price (MSRP) for Model S still stands at $79,989. And while Elon Musk blamed the price hikes on the disruptions in the supply chain, external observers have other thoughts on the same. One source has suggested that Tesla could be having other motivations, including the most obvious one of Tesla choosing to cash in as a result of the increased demand for electric cars.


(Written and edited by Richard Oyamo, for The Decision Maker)