This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
Key Points
- Tesla finally delivered long-anticipated more affordable models.
- The value proposition for its more affordable models is questionable.
- Now, standard base trims could potentially cannibalize premium trim sales.
"Any fool can reduce the cost of a car by making it worse and just deleting functionality."
-- Elon Musk, Tesla earnings call, October 2023
In an era where anything you say can and likely will be used against you at some point in time, that quote comes from none other than Tesla (NASDAQ: TSLA) CEO Elon Musk. This statement came back in 2023 while Musk was discussing removing vehicle cost. Almost exactly two years later, it's looking pretty ironic as Tesla makes significant cost-cuts by removing features for its Model 3 and Model Y to introduce a new "standard" base vehicle model.
Was it the right move? Let's look at the vehicle alterations, the value proposition, and the road ahead.
The game of pennies
As Tesla scrambles to pinch pennies from its existing Model 3 and Model Y to again create new standard models, it's estimated the company slashed roughly $5,000 from its newly introduced lower-priced model trims. Some cost cuts seemed like no-brainers; others sparked debate over whether the company took too much value out, leaving consumers with a Tesla unworthy of its luxury brand image.
Perhaps the largest cut, in terms of estimated dollars saved, came from reducing the battery capacity by roughly 10%, which saved an estimated $1,500. Tesla also threw on new wheels that were 1 inch smaller and replaced frequency-selective dampers with passive shock absorbers for another $700. A less powerful motor reduced cost by roughly $600, and smaller moves such as no ventilated seats, fewer speakers, less ambient lighting, and no rear infotainment screen, among others, generated the rest of the cost savings. There were even some head-scratchers including the Model 3 retaining the panoramic glass roof, while the Model Y keeps the glass but covers it with a headliner.
Results and responses
After the notable cost-cutting and feature removals, the Model Y Standard now starts at $39,990 and $41,630 with shipping, roughly $5,000 less than the previous base trim. The Model 3 Standard is about $5,500 cheaper starting at $38,630 with shipping.
The initial response hasn't been as inspiring as investors had hoped. "The most obvious change is the loss of the whipcrack response to the prod of the throttle," Edmunds said while reviewing the Model Y base trim compared with the previous version. "The languid response now feels more like a Honda CR-V than a traditional Tesla."
"You look at this new stripped-out Model Y and it's like, God, look at all the penny-pinching," said Ed Kim, chief analyst at AutoPacific, according to Automotive News. Ryan Shaw, with a YouTube channel focused on electric vehicles and Tesla, said the new base trim "might exist so that Tesla can get people to upgrade." He continued, "They can say the car starts at this low price, but really want you to upgrade."
What it all means
For investors, the cost reduction and feature alterations may bring more questions than answers. For only a $5,000 price difference, is the new Standard trim a better value to consumers, or is it just slightly cheaper giving a niche audience the lowest cost way to drive away in a Tesla vehicle? In other words, will a $5,000 price gap convince new consumers to try the brand, incrementally increasing the pool of Tesla buyers, or will it simply cannibalize sales and lower profit margins?
Only time will give investors the answers they desire, and we're likely to hear more during Tesla's third-quarter earnings results on Oct. 22. While this is a move Tesla needed to try, it's unlikely to reverse the company's recent global sales decline, which has seen global deliveries drop about 6% over the first three quarters of 2025, compared to the prior year.
Ultimately, investors and Tesla itself are in a bit of a soul-searching transition phase as the company attempts to evolve from primarily a vehicle manufacturer to a company focused on robotaxis, self-driving vehicles, artificial intelligence (AI), and robotics. Tesla isn't about to fade into obscurity, and its best days could still be down the road, but investors need to dust off their investing thesis and see if Tesla's direction is still in alignment with theirs long-term. The world changes, companies change, and so too must your investment thesis at times.
This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
