Tesla’s cheaper Model Y and 3 face fierce competition in Europe

Tesla’s (TSLA.O) lower-priced versions of its staple Model Y SUV and Model 3 sedan face an uphill battle in the region where Elon Musk’s company arguably needs help the most: Europe.

Unveiled on Tuesday, the $39,990 Model Y Standard and $36,990 Model 3 will join a European market already crowded with budget EVs, with European and Chinese brands offering more than a dozen models below $30,000 – and more to come.

That’s in contrast to the United States, where only one EV, the Nissan Leaf, falls into that price range.

“The competition in this market is fierce,” said Sam Fiorani, vice president at research firm AutoForecast Solutions, adding the array of EVs in Europe priced below Tesla’s cheaper Model Y and Model 3 could hamper their prospects.

LESS COMPETITION IN US, BUT LESS OPPORTUNITY

Tesla, which argues that its sometimes higher prices are justified by superior quality and features, has suffered an almost halving in its European market share to about 1.5 per cent since 2023, when the Model Y was the region’s best-selling car.

Analysts attribute the decline partly to an ageing product lineup and to a backlash by some consumers against Musk for his support of far-right politicians.

Tesla hopes the cheaper cars will revive sales after global deliveries fell in 2024 for the first time and are forecast to drop another 10 per cent this year, according to Visible Alpha estimates.

In the United States, the Model Y Standard’s sub-$40,000 price tag will match or undercut rivals including Hyundai Motor’s (005380.KS) Ioniq 5 SUV, General Motors’ (GM.N) Chevrolet Blazer, and Volkswagen’s (VOWG.DE) ID.4.

Still, the US EV market is expected to contract in coming quarters following the September 30 expiry of a longstanding $7,500 tax credit for buyers. Even if Tesla’s cheaper cars can claw back some market share, Musk has said it could face a “few rough quarters” if overall US demand stalls, as expected.

In China, Tesla’s new releases remain significantly more expensive than domestic rivals such as BYD Co’s (002594.SZ) Yuan Plus and SAIC-GM-Wuling’s mini EVs, which dominate the world’s biggest EV market.

DOZENS OF EVS DESCEND ON EUROPEAN SHOWROOMS

In Europe, Tesla is up against many cheaper rivals, including the BYD Dolphin Surf that starts at 23,000 euros ($26,830), the Dacia Spring at 16,800 euros and the Citroen e-C3 SUV at 23,300 euros. And more are coming.

Last month, Volkswagen said it planned an ID.Polo compact hatchback EV for under 25,000 euros next year.

However, Pedro Pacheco, vice president of research at consultancy Gartner, said the Model Y Standard would probably be cheaper than BYD’s best-selling Seal plug-in hybrid SUV.

Tesla halted sales declines in some European markets in September after refreshing its Model Y with interior and exterior upgrades, helping deliver record third-quarter global deliveries.

Still, analysts say its limited lineup is ageing. The Model Y, launched in 2020, remains its last mass-market new model.

CHEAPER MODEL Y ‘ISN’T GOING TO BREAK THE MARKET OPEN’

Schmidt Automotive analyst Matthias Schmidt said the cheaper Teslas should “add more momentum” from next year, but warned that Europe’s EV market is about to get much more crowded.

AutoForecast Solutions projects more than 25 new EVs launching in Europe next year, with roughly a dozen more by 2027.

Fiorani forecast the Model Y Standard could sustain Tesla’s European sales based on current pricing information.

But “it isn’t going to break the market open in a way that a 30,000 euro vehicle would,” he said.