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Expert explains the potentially enormous side effect of Tesla's 'cutthroat' price drops: '[It] may signal a death blow'

"As the market grows, it's amazing what kind of innovation will happen."

"As the market grows, it's amazing what kind of innovation will happen."

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Tesla, the world's largest electric vehicle (EV) manufacturer, has spent recent months making it a lot cheaper to buy an electric car

The company had cut prices multiple times in 2023 before raising some very slightly, allowing shoppers to buy a Tesla for as low as $40,240. For comparison, the average cost of a new vehicle in the U.S. is roughly $48,000 according to the latest data.

According to CBC News, those moves could completely change the car industry. Don Pittis, a business columnist for the outlet, wrote that these price cuts may indicate a "global transformation in the automotive sector."

"Cutthroat pricing by Tesla may signal [a] death blow to internal combustion vehicles," Pittis wrote.

On average, EVs are more expensive to manufacture than vehicles with combustion engines, meaning they typically cost more. But as EV demand grows, automakers are rushing to lower production costs. Innovations in production and technology will allow manufacturers to sell electric cars at lower prices, making them more accessible.

Tesla's price cuts could signal a price war between EVs and combustion engine vehicles, though CEO Elon Musk has denied this. Nonetheless, as EVs become cheaper, manufacturers will compete to meet the growing demand by expanding their EV offerings. 

Tesla's first round of 2023 cuts took place in January and allowed some Tesla vehicles to qualify for a federal EV tax credit. The price reductions are dramatic and unprecedented. According to Bloomberg transportation specialist Tom Randall, "No carmaker has made such a dramatic reduction to a high-volume vehicle in the modern age of the automobile." 

Though prices have declined in recent months, new cars are still historically expensive. Dramatic price cuts like those at Tesla provide buyers with cheaper options in a market flooded with expensive vehicles. These price cuts also put pressure on other manufacturers to lower their prices and offer more EVs to compete with Tesla's offerings. 

As prices fall and demand drives up the supply of EVs, it will become easier and easier for drivers to switch to an EV.

"As the market grows, it's amazing what kind of innovation will happen," Rachel Doran, director of policy and strategy at Clean Energy Canada, told CBC News.

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