Tesla raises Model Y price $500 after cutting it by $13,000

After cutting the price of its popular Model Y crossover by $13,000 this month, Tesla Inc. has now raised the starting sticker by $500 without explanation.

The most inexpensive version of the EV, the Model Y Long Range, now starts at $53,490 before the $1,390 shipping fee and $250 order fee. That means it still qualifies for the new $7,500 tax incentive that’s part of the Inflation Reduction Act signed into law last year.

The $500 price change appeared on Tesla’s U.S. shopping site Tuesday.

Since the standard, two-row Model Y is classified as a car by the IRS, it faces a price cap of $55,000 for the tax incentive. Shipping and other fees are excluded from the price limit.

The less popular version of the crossover, the three-row Model Y for an extra $4,000, is classified as an SUV and has a price cap of $80,000 under the preliminary IRS guidance.

The Treasury Department is still developing regulations around the EV credit, with a March deadline for final guidelines.

Tesla CEO Elon Musk has complained on Twitter about the classification of the two-row Model Y as a car and urged Tesla fans to complain directly to the IRS. Musk is expected to participate in Wednesday’s earnings call after the stock market close.

Industry analysts saw this month’s $13,000 price drop as Tesla’s response to softening demand due to a slowing economy and relatively high prices since the automaker sharply raised stickers over the last two years. Tesla’s three other models also received price cuts earlier this month.

But the $500 about-face on just the Model Y, and not the other models, sparked speculation by the brand’s fans on social media Tuesday. Tesla no longer has a press office and didn’t respond to an email requesting comment on the price increase.

One theory is that two popular options, larger “induction” wheels and red paint, at $2,000 each, could create supply chain or production issues on soaring demand for the price-reduced Model Y.

Before the price cut and EV incentive took effect, the most inexpensive Model Y started at $65,990 before fees. The effective price is now $45,490 for customers eligible for the tax break, giving buyers more financial leeway to add options. Tesla may have a limited supply of premium wheels and proprietary red paint in the short term, according to the theory.

Other optional paint colors can still be added while staying within the $55,000 limit. The black paint option is $1,500, blue is $1,000, silver is $1,000 and white has no cost. On the interior, white seating is $1,000 while black has no cost.

“Seems like Tesla wants to keep options simple and down to a few combinations for production efficiency,” said Twitter user @evhelphub. “Glad to have placed my Model Y order last week.”

Other social media users speculated that Tesla was testing its ability to raise the price slightly while keeping demand steady. Or that the EV maker was deliberately creating a sense of urgency by suggesting the price would continue to rise up to the $55,000 limit for the EV tax credit — or even beyond the $55,000 limit, nullifying the $7,500 tax break.

“Some customers may expect future price drops after they see significant pricing changes,” wrote Twitter user @ExpElectric, citing research on consumer behavior. “By increasing the cost of your product by a small percentage you are able to illustrate to this group of customers that they need to buy now as the price being given now may not last.”

Two financial analysts who are also Tesla investment bulls suggested the price increase was good for the automaker without providing further analysis.

“$500 price increase on Model Y LR, combined with 80 percent inventory reduction … since the price cuts, should be viewed favorably,” wrote Gary Black, @garyblack00, managing partner at The Future Fund.

Gerber Kawasaki CEO Ross Gerber, @GerberKawasaki, echoed suggestions that Tesla could continue to raise Model Y prices. “The Tesla sale price is already moving back up,” he wrote. “Now up $500 for a new Model Y so you can still get the $7,500 tax credit. Better get these sale prices while they last.”

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