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Tesla raises price of Model Y amid Treasury Department’s revisions to EV tax credit

Yahoo Finance automotive correspondent Pras Subramanian examines Tesla's choice to raise the price of its Model Y while Ford holds steady with the pricing of its Mustang Mach E after its recent price drop.

Video transcript

PRAS SUBRAMANIAN: Tesla is raising the price for the Model Y after the US government issued a rule change for its EV tax credit. Here's what you need to know.

Tesla hiking the price of its Model Y Long Range by 2%, giving the electric vehicle a new price tag of $54,990. The price hike is coming on the heels of a significant rule change for how the government defines an SUV, allowing more vehicles to fall within the SUV category and still qualify for the federal government's $7,500 EV tax credit, even at higher prices.

Tesla CEO Elon Musk has publicly criticized the government's eligibility rules in the past and just last week met with top White House officials to discuss shared goals around electrification and advancing electric-vehicle production. The adjusted guidance now caps the Model Y's eligibility for the tax credit at $80,000, giving Tesla a lot more room to run in terms of incrementally raising prices. The bottom line for consumers looking at EVs-- you might want to order one now before prices rise again.

SEANA SMITH: All right, well, let's talk a little bit more about some of the changes that we've seen in the EV market when it comes to price. Pras Subramanian in here in studio with us. Pras, great stuff there in terms of breaking down what we're seeing from Tesla with the Model Y. I think what a lot of people are asking right now, what those future price hikes, if that's on the table, and what that could look like.

PRAS SUBRAMANIAN: You know, I think that we could see more price hikes coming because of the fact that they're still significantly below that $80,000 cap for those tax credits. They're slowly kind of inching back $1,000 here, $500 here. Why not, right, if your demand is outstripping supply like Elon said and that January orders were 2 to 1 in terms of what they can actually make versus what they actually are ordering? So I think they have some room to actually raise those prices and maybe only marginally hit people that would then cancel.

So I think that you could see that happening, especially when Tesla wanting to maintain those industry-best margins. And Ford struggling, right, with some of their kind of initiatives too to go full EV.

DAVE BRIGGS: Yeah, Ford turned out a rough quarter. So Mach-E had to cut prices to keep up with Tesla. Will they raise them right back up and just stay right with them?

PRAS SUBRAMANIAN: Well, they were kind of in lockstep with each other, kind of competing against those same customers. And Ford is saying we're not going to actually hike here. We're going to keep it here where it's at right now with that cheaper Ford Mustang Mach-E right there. You're seeing that price on screen.

They actually had to cut down a lot in order to meet Tesla, and it doesn't make sense for them to actually keep rising-- keep hiking because they don't have dynamic price, right? You can't actually go to the website and buy the car. You can with the Tesla. You actually have to go to the dealer, do this, do that. [INAUDIBLE] website put your name on the list. So they can't actually kind of lower and hike prices in a kind of real-time manner. So I guess they kind of make those hikes or cuts permanent for a while.

DAVE BRIGGS: Pras Subramanian, good stuff, my friend. Thank you. Appreciate that.